What Are Living Trusts and How Do They Work?

by Stacy Francis, CFP®, CDFA

During a charity dinner last night, one of the women mentioned that she and her husband are drafting a trust. The discussion then went from wills to trusts and back to wills again as the other people at the table tried to grasp the differences.

With this in mind, here’s the 411 on living trusts.

  1. The main difference between a will and a living trust is that trusts are confidential.
  2. There are two main types of trusts: revocable and irrevocable. Revocable trusts can be changed; irrevocable ones cannot – so you’d best be beyond sure of what you want to do before you commit to one.
  3. One may ask, then, why anyone would draft an irrevocable trust, when they could just write a revocable one? The answer is money. When you die, the assets in your irrevocable trust are not considered part of your estate, so they are not taxed.
  4. If your estate is under the estate tax exemption amount (currently $2 million, but it will be $3.5 million starting next year), you may not need a trust, but may be fine with just a will.
  5. Finally, a trust may be a good idea if you want to provide for children, disabled relatives, or others who may not be able to manage their own assets, as this duty will be transferred, seamlessly, to your elected trustee.

Everyone should have either a will or a trust. Which one is more beneficial for you will depend on your circumstances.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.