Understanding Living Trusts and their ins and outs is crucial before you begin to create one. In Understanding Living Trusts, you’ll explore what one is, the pros and cons of a living trust, and the differences between a Living Trust and a Will. Does a revocable Living Trust ever become irrevocable, meaning no longer able to change, and if so, when does that occur? As you can see, there is a lot to understanding Living Trusts, but once you understand how they operate, you will feel more confident in knowing if a Living Trust is for you.
This post is for informational purposes only and is not intended for legal advice. You want to be sure that everything you set up, be it a will, a living trust, or both that it set up to meet legal guidelines in your state and your intended desires are addressed.
What is a Living Trust
A Living Trust is a document created when you are living (hard to do if you’re not) thus “Living” Trust. It includes your assets such as bank accounts, real estate, jewelry, and even vehicles. These assets are used by you (the grantor) during your lifetime, and then the Living Trust states who (beneficiaries) these assets will go to upon your death.
The person who owns the property going into the trust is known in legal terms as the grantor. The grantor’s name is taken off the property and transfers the ownership into the name of the trust. For example, let’s say John Doe owns a vehicle, and his name is on the vehicle’s title. With a Living Trust, John Doe’s name is taken off the vehicle’s title and put into the name of the trust. The exact process would be the same with other property.
An essential step with 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.
The grantor appoints someone to be the trustee. A trustee makes sure the instructions in the Living Trust document are carried out. You can be the trustee of your own Living Trust, keeping complete control over all property held in trust until your death. Upon death, the assets/property in the Living Trust will be distributed to the beneficiaries who are stated in the trust.
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, the successor(s) is the person who will administer the estate after your death and make sure your desires are carried out as stated in the Living Trust.
And it’s worth repeating – Remember, the trust needs to be funded. You need to re-title assets from your ownership to the trust. If you miss this critical step, the trust is not valid.
Two Types of Living Trusts
Irrevocable Living Trust
- An irrevocable Living Trust cannot be changed.
Revocable Living Trust
- A revocable Living Trust allows the trustee to change the trust whenever he/she wants.
- A revocable Living Trust generally becomes an irrevocable Living Trust at the time of the grantor’s (creator’s) death. This allows the wishes of the grantor to be carried out without the risk of a beneficiary changing anything.
Pros and Cons
- No Probate
- Private – Does Not Become Public Record
- Cannot Appoint Guardianship
- It Does Take Some Administrative Work – For Instance When Assets Change
Revocable Living Trust vs. A Will
Maybe you’re thinking how is a Living Trust different from a Will?
One of the most significant differences between Living Trusts and Wills is that every Will must go through probate while Trusts do not. Probate is a legal process where the court will look over the Will and determine its legality. Probate can be expensive and take a long time.
Wills can be contested, while a Living Trust usually cannot be contested.
You can name guardianship of minor children in a Will but not in a Living Trust.
A Will becomes public record whereas a Living Trust is a private document.
A Will becomes active at the time of death. A Living Trust becomes active after it’s funded and signing has taken place.
Because of the differences between a Will and a Living Trust some people find it advantageous to have both.
Revocable Living Trust vs. Will – Comparison Table
|Revocable Living Trust||Will|
|Becomes Active||After Funding||Upon Death|
|Can Name Guardianship||No||Yes|
Which Takes Precedence?
Both Wills and Living Trusts are legal documents independent of each other. If upon the death of the owner and both documents are held if they contradict each other, the Living Trust takes precedence.
|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||A Legal Process That Takes Place After Someone Dies, Proving In Court That A Deceased Person’s Will Is Valid And Identifying And Inventorying The Deceased Person’s Property And Making Sure The Deceased Person’s Wishes Are Carried Out.|
|Revocable||Able To Be Changed|
|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.|
It you are looking for a software program to create your own Living Trust or Will you might find another post I wrote beneficial to read.
Also here is a direct link to Nolo’s downloadable software program for creating a Living Trust
And though a Will or Living Trust are two very important documents there are other documents every adult should have.
I hope you have gained some insight into Understanding Living Trusts. Do you already have a Living Trust or Will? What was your experience in creating either one. Please comment below.