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.
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.
- Living Trusts are legal documents that can help you avoid probate and manage your assets.
- There are two main types of Living Trusts: revocable and irrevocable.
- While Living Trusts can offer benefits over wills, it’s important to consult with an attorney to determine what’s right for your specific situation.
What Is A Living Trust?
A Living Trust is a legal document that is created during your lifetime. It includes your assets such as bank accounts, real estate, jewelry, and vehicles. 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.
The person who owns the property going into the trust is known in legal terms as the grantor. The grantor transfers assets and their name is taken off the property, and the ownership is transferred into the trust’s name.
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 the 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 trustee is the person who will administer the estate plan after your death and make sure your desires are carried out as stated 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.
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 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.
- Irrevocable trusts are 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 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 maintain privacy.
Pros and Cons of Living Trusts
Living Trusts have their advantages and disadvantages. Here are some pros and cons to consider before creating a Living Trust:
|Cannot appoint guardianship
|Provides privacy – does not become public record
|Requires some administrative work, such as updating assets
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 of the most significant differences is that a Will must go through the probate process, while a Living Trust generally does not. Probate is a legal process where the probate court will look over the Will and determine its legality. Probate can be expensive and time-consuming, which is why many people prefer to avoid it.
Another difference is that a Will can be contested, while a Living Trust is usually not subject to challenge. Additionally, a Will becomes a public record, while a Living Trust is a private document.
On the other hand, a Will allows you to name guardians for minor children, while a Living Trust does not. A Will also becomes active upon death, while a Living Trust becomes active after it has been funded and signed.
Because of these differences, some people find it advantageous to have both a Will and a Living Trust. It is important to consult with a qualified estate planning attorney to determine which option is best for you and your unique situation.
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
|Can Name Guardianship
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.
|A Person Or Organization Named In Certain Legal Documents Who Will Receive Some Type of Asset When You Pass Away.
|Argued Over Or Questioned.
|The Process Of Transferring Assets To The Ownership Of A 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.
|A Grantor Is A Person Who Establishes A Trust And Legally Transfers Control Of Assets To A Trustee.
|Unable To Change
|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.
|Able To Be Changed
|The Person Responsible For Administering The Trust After Its Grantor Either Passes Away Or Becomes Incapacitated.
|Manages The Assets In The Trust
|A Legal Document That States How You Want To Distribute Your Assets After Death And Can Also Appoint Guardians For Minor Children.
It is important to work with an estate planning attorney to ensure that your legal documents, such as your Will and Trust documents, are properly drafted and executed. This can help ensure that your wishes are carried out and that your assets are distributed according to your wishes. Additionally, proper estate planning can help minimize taxes and avoid the probate process, which can be costly and time-consuming.
How Can You Create a Living Trust Without a Lawyer?
While it is possible to create a Living Trust without a lawyer, it is recommended that you seek professional advice to ensure that your trust is legally sound. Some options for creating a Living Trust without a lawyer include using online legal services or purchasing a DIY Living Trust kit. However, it is important to carefully review any documents you create to ensure that they meet your needs and are legally valid.
What Assets Should Not be Included in a Living Trust?
While most assets can be included in a Living Trust there are some types of assets that should not be included. These include retirement accounts, such as 401(k)s and IRAs, which have their own beneficiary designations. Additionally, assets that have a beneficiary designation, such as life insurance policies, should not be included in a Living Trust.
Who Should Consider a Living Trust?
A Living Trust is a legal document that allows you to transfer your assets to a trust during your lifetime. This type of trust is ideal for individuals who want to avoid probate and have more control over how their assets are distributed after their death. If you have a large estate or a complex family situation, a Living Trust may be a good option for you.
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.