Understanding Living Trusts – Your Road to Avoiding Probate

If you’re considering creating a Living Trust, it’s important to understand what it is and how it works. In this article, we’ll cover the basics of Living Trust, including the different types, their pros and cons, and how they compare to wills. By the end of this article, you’ll have a better understanding of whether a Living Trust is the right choice for you.

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It’s worth noting that this article is for informational purposes only and is not intended to provide legal advice. To ensure that your Living Trust (or any other estate planning document) meets legal guidelines in your state and reflects your wishes, it’s a good idea to consult with an estate planning attorney. With that said, let’s dive into the world of Living Trusts.

What Is A Living Trust?

A Living Trust is a legal document that is created during your lifetime. Assets such as your bank accounts, real estate, jewelry, and vehicles can all be included in this type of trust. . You (the grantor) use these assets during your lifetime, and then the Living Trust states who (the beneficiaries) these assets will go to upon your death.

An essential step in the process of creating a Living Trust is that you have to fund it – this is the process of legally changing the name of the assets from your name into the name of the trust. Just creating the trust and not doing this step is the same as not having a Living Trust – so be sure to do this crucial step.

Grantor – Person Who Starts the Trust

The person who sets up the living trust is known as the grantor. The grantor transfers ownership of their assets into the name of the trust. Once this step is completed, the grantor no longer owns the assets directly. This transfer is key in having a functioning trust. For example, you need to move the title of property from your name to the name of the trust to ensure control of your assets is properly transferred.

Trustee – Person That Manages the Trust

The grantor appoints someone to be the trustee. The individual appointed to execute the trust’s terms is known as the trustee. Usually, the grantor initially acts as the trustee, maintaining full control over the trust assets during their lifetime. After the grantor’s death, the trustee’s responsibility is to distribute the trust property to the named beneficiaries. This role is critical in managing the trust fund and making sure the beneficiaries receive their designated portions of the estate.

Successor

You will also name a successor(s). If you become incapacitated because of a mental disability, the successor(s) can manage your financial affairs without the cost of additional legal fees or delays. Also, after the grantor’s death the successor trustee is the person that ensures that all assets are distributed as specified in the living trust.

It’s worth repeating – Remember, the trust needs to be funded. You need to transfer ownership and re-title assets from you to the trust. If you miss this critical step, the trust is not valid.

Keep in mind, your trust should be tailored to meet the specific needs of your situation, whether it’s protecting minor children, handling business interests, or managing other personal property.

Video: Understanding Living Trusts

Two Types of Living Trusts

Irrevocable Living Trust

• An irrevocable Living Trust is a type of trust that cannot be changed or dissolved once it is created. The grantor gives up control over the assets and the trust becomes an entity separate from the grantor.
• The assets placed in an irrevocable Living Trust are no longer considered part of the grantor’s estate, which can have tax benefits.
• An Irrevocable trust is often used for estate planning purposes, asset protection, and to provide for beneficiaries with special needs.

Revocable Living Trust

• A Revocable Living Trust is a type of trust that can be changed or revoked by the grantor at any time.
• The grantor retains control over the assets in the trust during their lifetime and can dissolve it or make changes as they see fit.
• Upon the grantor’s death, the trust becomes irrevocable, and the assets are distributed according to the grantor’s wishes.
• Revocable trusts are often used as a way to avoid probate, provide for beneficiaries, and keep your affairs private.
• A revocable trust can also be a useful tool for managing your financial and medical affairs if you become incapacitated.

Pros and Cons of Living Trusts

Creating a living trust is an important estate planning tool because it provides maximum control over your assets but requires careful consideration of its advantages and disadvantages.

Pros	Cons
Avoids probate.	Cannot appoint guardianship.
Provides privacy – does not become public record.	Requires ongoing administrative tasks, such as updating the trust document.
Protection from creditors: Provides some asset protection, shielding assets from some creditors.	Costs and fees: Setting up a living trust can be expensive, with fees ranging from $1,000 to $1,500, significantly higher than a basic will.

A Living Trust can provide peace of mind by avoiding probate and keeping your affairs private. However, it cannot appoint guardianship, and it does require some administrative work, such as updating assets. It’s important to weigh the benefits of a Living Trust, such as asset protection and protection from creditors, against the potential disadvantages, such as costs and fees.

Revocable Living Trust vs. A Will

If you are considering estate planning, you may be wondering about the differences between a Revocable Living Trust and a Will. One key difference is that a Will must go through the probate process, while a Living Trust generally avoids it. Probate is a legal process where a court examines the Will to ensure its validity. This can be costly and take considerable time, making a Living Trust a favorite of consumers looking to avoid these hassles.

Another difference is that a Will can be contested, while a Living Trust is usually not subject to challenge. Another difference is privacy. A Will becomes a public record, meaning anyone can see its terms. In contrast, a Living Trust remains private, shielding your financial affairs from public scrutiny. This privacy is often a significant benefit for many people.

A Will allows you to designate guardians for minor children, which isn’t possible with a Living Trust. A Will only takes effect after your death, while a Living Trust becomes effective once it is funded and signed. This funding often includes assets like real estate and bank accounts.

The Living Trust can provide peace of mind by avoiding the probate process and offering privacy, but a Will may be crucial for designating guardians and handling certain other affairs. Many people find it useful to have both documents as part of their estate planning tool to cover all their bases. It is important to consult with a qualified estate planning attorney to determine which option best suits your unique circumstances.

Revocable Living Trust vs. Will – Comparison Table

Compare the differences between a revocable Living Trust and a will in the table below:

	Revocable Living Trust	Will
Becomes Active	After Funding	Upon Death
Contested	Rarely	Often
Can Name Guardianship	No	Yes
Probate	No	Yes
Public Record	No	Yes

Summary: A revocable Living Trust becomes active after funding while a will becomes active upon death. A Living Trust is not typically contested, cannot name guardianship, and avoids probate and public record. A will can be contested, can name guardianship, and goes through probate and public record.

Which Takes Precedence?

In the event that both a Will and a Living Trust are held and they contradict each other, the Living Trust takes precedence. Both documents are independent of each other, but the Living Trust has the authority to distribute the assets and property according to the wishes of the owner.

Definitions

Beneficiary	A Person Or Organization Named In Certain Legal Documents Who Will Receive Some Type of Asset When You Pass Away.
Contest	Argued Over Or Questioned.
Fund	The Process Of Transferring Assets To The Ownership Of A Trust.
Living Trust	A Legal Document That Places Your Assets—in Trust For Your Benefit During Your Lifetime, And Spells Out Where You’d Like These Things To Go Upon Your Death.
Grantor	A Grantor Is A Person Who Establishes A Trust And Legally Transfers Control Of Assets To A Trustee.
Irrevocable	Unable To Change
Probate	The legal process where a court verifies a will and oversees the distribution of a deceased person’s assets. One main advantage of a living trust is that it avoids the probate process, ensuring faster distribution of assets without the control of the probate court.
Revocable	Allows the grantor to make changes to the trust at any time, whereas an irrevocable trust cannot be changed once it is established. Irrevocable living trusts can provide significant asset protection and help reduce estate taxes.
Successor	The Person Responsible For Administering The Trust After Its Grantor Either Passes Away Or Becomes Incapacitated.
Trustee	Manages The Assets In The Trust
Will	A Legal Document That States How You Want To Distribute Your Assets After Death And Can Also Appoint Guardians For Minor Children.

To ensure your estate plan is effective, work with an estate planning attorney. This professional can help draft and execute your will and trust documents properly, ensuring they comply with state laws. Consulting with a financial advisor can also be beneficial in managing your investments and overall financial affairs.

For those with special needs children or minor children, setting up a testamentary trust within your will can be ideal. This trust only takes effect upon your death and allows you to manage how assets are used for the care of these children.

Proper estate planning involves beneficiary designations on accounts like life insurance policies and bank accounts. It’s essential to keep these designations up to date to ensure that your assets are distributed according to your wishes.

Lastly, a trust fund can be set up to provide a steady living allowance to beneficiaries, ensuring long-term care and financial stability.

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FAQs

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Conclusion

Making a Living Trust helps protect your assets and distribute them according to your wishes without going through probate. This legal document offers peace of mind, ensuring a smooth transfer of assets to your chosen family members, including minor children, under the terms of the trust.

We hope this article has provided you with a better understanding of Living Trusts and how they can help you avoid probate. If you have already created a Living Trust or Will, please share your experience in the comments below. Remember, it’s important to plan for the future to ensure your assets are protected and distributed according to your wishes.

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Additional Reading