A living trust has its own benefits over a will.
A will becomes a public document upon a person’s death as probate is granted.
A living trust works best if you have a lot of assets in many places, have a family business, have complicated family situations or are a single person.
It has been said that estate planning for single persons is more important than married ones. This is so because if a single person dies without a will, then the default rule applies according to the Distribution Act 1958.
“Trust or living trust, also known as inter-vivos trust, is a unique trust that is kind of a fund that can own someone’s property or chattel while they’re still living,’’ said lawyer Bhavanash Sharma.
He said almost anything that has value of any kind can be placed in a living trust, including real estate, bank and savings accounts, vehicles, fine art, jewellery and virtual valuable items like intellectual property.
Anyone can set up a living trust as a part of their estate plan. But for now, only a small percentage of people actually need a living trust.
The biggest benefit to setting up a living trust is that the assets are quickly distributed upon death as opposed to a will.
For a will, a probate process is needed and that means having to wait until the order is obtained from the courts of law.
What a living trust does is it names a trustee who can immediately take care of your end-of-life affairs, like paying for funeral costs and distributing property to heirs, without having to wait on a probate judge to first grant the order, he said.
This is beneficial especially if you have minor children whereby you can avoid all of your assets getting stuck in a probate process, and quickly deal with the children’s basic maintenance, education and even living expenses.
It also means less waiting time and probably less probate costs.
He said a living trust offers more protection if challenged. It is less likely to be challenged than a will as it makes it a lot harder for the challenger(s) to prove that you were coerced into signing documents or forced to go through the whole process of funding the trust.
It provides protection against negligence claims, creditors or bankruptcy. A living trust is getting popular among professionals especially in relation to asset protection against negligence claims and creditors or bankruptcy. But this is subject to the relevant laws in Malaysia, including, but not limited to, the Insolvency Act 1967.
“Most importantly, a living trust protects privacy. Since a will is a public document, anyone can get a copy of it after a person’s death as it will become a public document after the grant for probate is applied,’’ he said.
In contrast, a living trust is completely private as no one can know the details of the trust without the settlor or trustee sharing that information.
There are two types of living trusts – revocable trusts and irrevocable trusts
A revocable trust can be altered or revoked and cancelled. But the irrevocable trust cannot be altered in any way, shape or form by the settlor himself.
This is simply because once a person transfers ownership into the trust, he does not have control over those assets anymore.
If needed, start with a revocable living trust and later convert it to an irrevocable trust.
If the person who set the trust dies, their revocable trust automatically is converted into an irrevocable one.
But living trusts have their own challenges.
Before you decide on a living trust, weigh the pros and cons.
The main challenge is if you plan to sell a property under trust, it would mean making changes to the trust and additional fees apply. Setting up a trust may also be a costly affair as opposed to a will.
“Each time you plan to make a change to your living trust, you will probably have to use a lawyer which means more costs.
Beyond that, the trust administration fees apply to you, even when you don’t own the property anymore,’’ he said.
To set up a living trust, lawyers could charge between RM5,000 and RM20,000 depending on the value of the estate and time costs spent on the matter. This would not include the costs to execute the trust, he added.
Source: The Star