Odds are, if you've thought about estate planning, someone has suggested you set up a living trust. It's a way of avoiding the time and cost of probate, since any assets that have been transferred into a living trust during one's lifetime are passed along automatically, after the donor's death, to his or her designated beneficiaries without any of the hassles of probate court. And there's no loss of control, since donors can name themselves as trustees while retaining the right to revoke or cancel the trust at any time.

Despite the advantages, Steven Enright, a River Vale, N.J., financial adviser, warns that living trusts are often misused.

"If you and your spouse own assets jointly and you're planning to leave your assets to your spouse, there's no need for one, since such assets don't pass through probate," he says. "Or if you put some, but not all, of your assets in the living trust, the benefit is limited, since the rest of the assets will have to pass through probate."

But living trusts may be helpful when estates of significant size (at least $1.2 million) are passed between generations. "The trusts won't produce any estate-tax savings, but they might save time and complications, which could be valuable if the estate includes shares in a business," says Enright. In such cases, coordinate the design of your living trust with the rest of your estate plan and expect to pay an extra $500 to $1,000 in legal fees.

-- Jill Andresky Fraser