Living trusts have become popular alternatives to traditional wills as estate planning documents. Determining if a living trust is the best solution for you depends on your circumstances.

A trust is a legal device used for the management of property. In a trust, legal title to the property—the right to manage the property—is held by one person, called a trustee, while another person, called the beneficiary, has the beneficial right to the use and enjoyment of the property.

A living trust is a trust created while the creator is living (compared to a testamentary trust, which is created at or after the creator's death under the terms of his or her will). A living trust may be revocable (changeable by the creator prior to his or her death) or irrevocable (unchangeable by the creator). When most people speak of a "living trust," they mean a revocable trust created during the creator's lifetime for the management and disposition of all, or substantially all, of the creator's property.

Different marketers of these types of trusts call them different things—some are registered trademarks such as "loving trust," while others are more descriptive terms such as "family trust," "revocable management trusts" or simply "living trusts." living trusts will be discussed below.

In a typical case, the creator of the trust—called the settlor or trustor—names himself or herself as the initial trustee and the initial beneficiary. Thus, the settlor holds legal title to trust property as trustee for his or her own use and benefit as beneficiary. When the settlor dies, becomes incapacitated or resigns as trustee, another person becomes trustee and manages the property for the benefit of the settlor, if living, or for the beneficiaries named by the settlor, if the settlor is dead. For example, the trust may provide that, upon the settlor's death, the settlor's daughter becomes trustee and is instructed to distribute the trust property in equal shares to the settlor's three children.

A will is a legal document that becomes effective at your death and specifies how your property is to be disposed of. To be effective, a will must be acknowledged as valid through a court procedure known as probate. A living trust also specifies how your property is to be disposed of at your death, but since it exists before your death, its validity does not need to be acknowledged by a probate proceeding. It is this quality—avoidance of probate—that has brought the living trust most of its recent popularity.

Revocable living trusts are marketed in many states as a great way to avoid probate—especially in states with complicated administration procedures. In many states, estates are put through court-supervised administrations where the executor must have the court’s approval to do most anything. Over time this can be very expensive. However, in Texas, most well-drafted wills provided for independent administration, which allows an executor to handle estate business without on-going court supervision and approval. Therefore, in Texas, delays or prohibitive costs of probate are not as much of a concern as they are in many states.

It depends. Living trusts are more complicated than wills and typically cost more. They also require the consumer to do more things, such as change ownership of property into the name of the trust, which definitely adds trouble and inconvenience and may add expense. Usually some of the settlor's property is left out of the living trust (either by design or neglect), so a pour-over will—a will which "backs up" the living trust and says, in essence, "If I forgot to put anything into the living trust before I died, I hereby put it there at my death"—has to be probated to get those assets into the trust.

In most cases, where the plan of disposition is straightforward (for example, in trust for your spouse and then to your children in equal shares when the surviving spouse dies), the cost of the probate proceeding is likely to be roughly equal to the additional cost of the living trust-based estate plan, so there is little or no savings. In other cases, the savings and other advantages can be substantial.

The traditional and most common method of estate planning involves a will and various disability documents. One advantage of a living trust is its usefulness in the event of incapacity. However, a statutory durable power of attorney may accomplish the same thing in case of incapacity. While some banks and others are reluctant to accept and act on a power of attorney, the Texas statutory durable power of attorney is generally accepted at most banks and financial institutions.

Maybe so, maybe not. It is likely to have some effect, but it might not work the way you intend. Wills are complex documents that should be prepared by an attorney—and living trusts are even more complicated than wills. Lawyers who do estate planning and probate work often are called on to fix, or try to administer, do-it-yourself living trusts which are deficient in one or more respects. The cost of fixing or administering a deficient trust often exceeds the cost of having a proper, lawyer-prepared instrument. It may sound self-serving for lawyers to say so, but self-help trusts and wills often do more harm than good.

Your lawyer should evaluate your particular situation to determine if a living trust is right for you. Be careful if the lawyer you consult never uses living trusts or always uses living trusts—rarely is "one size fits all" good legal advice. Here are some factors which often make using a living trust a good idea:

• Real estate in another state — if you are a Texas resident and own real estate in a state other than Texas, the proper use of a living trust could save you the cost of a probate proceeding in the other state.

• Impending disability is likely — if your age or medical condition is such that you have a reasonable fear that you will soon be unable to manage your own property prior to your death, then a well-drafted living trust could make it easier for the people you pick to manage your property.

• Heightened privacy concerns — virtually everyone wishes to keep their personal financial affairs private, but if you have a greater than average desire for privacy, then a living trust may be a good idea. If used properly, there can be less public disclosure of what you own if you become disabled or die. Be careful that marketers of living trusts don't use this improperly as a fear factor to motivate you to buy their product, however.

• Post-retirement, stable assets — if you are retired and are not in "acquisition mode"—in other words, if you are not buying new cars every couple of years, opening and closing accounts frequently, changing jobs, starting new businesses, etc.—then a living trust may make sense. For the rest of us, properly operating a funded living trust is usually too much of a hassle, especially if probate avoidance is the primary goal.

• Will contest likely — if your loved ones are likely to fight over your will, then in some cases (with expert advice and attention) a living trust may make it less likely that someone will successfully contest your plan based on undue influence, lack of capacity, etc.

If most or all of these factors are not present in your situation, and they aren't for the vast majority of people, then a traditional will-based plan is probably the simplest and cheapest way to plan. Remember, though, that these are just general guidelines—your lawyer will discuss your particular situation with you and help you determine what is best for you.