Wouldn’t it be great to be able to see into the future? To know exactly what’s going to happen and be able to prepare for it well in advance?
In a way, a living trust does give you the power to “predict” the future. It allows you to specify certain things that must happen upon your death, while also giving you the ability to maintain control over your estate.
In this guide, we’re going to walk through the who, what, and why of living trusts.
To learn about other types of trusts, you can explore our complete guide to trusts.
What is a Living Trust?
A living trust is a legal document that specifies how your (the “settlor”) assets will be distributed after you die and how it will be managed. Unlike a testamentary trust, which isn’t technically created until you die, a living trust is created during your lifetime. A designated individual called the “trustee” is responsible for managing the assets in the trust and distributing them after your death or you are incapacitated.
A living trust can be used to manage your financial affairs while still keeping your estate protected and avoid probate court proceedings.
There are two types of living trusts
- Irrevocable – These trusts cannot be changed after they’re set up. Essentially, the designated trustee becomes the legal owner of the assets in the trust. The advantage of this type of trust is that you reduce the amount of your estate that can be taxed.
- Revocable – The trust settler (which is often the same person) can revoke it or amend it at any point up to the point of their death. With a revocable living trust, you can designate yourself as trustee and take control over assets within the trust. However, doing this means the assets in the trust remain in your estate and may still be subject to estate taxes after your passing.
Why Should You Create a Living Trust?
Creating a living trust is an important part of estate planning. There are many benefits to creating and maintaining the trust, including:
- Protecting assets from taxes or creditors who might otherwise go after them
- Ensuring that your assets will be distributed to beneficiaries according to your wishes
- Avoiding probate fees and other court costs associated with settling your estate
- Avoiding the lengthy, public probate process
- Peace of mind, knowing that your loved ones will receive the assets you want them to
How Does A Living Trust Work?
A living trust is usually created alongside your last will and testament. It allows you to dictate how your assets will be distributed after your death. It can also protect these assets from being taken by someone outside of the trust.
Even if you have a living trust in place, you should still have a will as well. This allows you to change the provisions for the living trust (if it’s revocable) and update it to reflect changes in circumstances or even add new people with special instructions regarding how their inheritance is handled after death.
Additionally, it can help protect any assets of yours that are not specified in the trust by keeping them out of probate court.
How Do I Create My Living Trust?
The process of creating a trust can vary depending on state laws, stipulations, etc. However, the general process of creating a trust is as follows:
- Determine the purpose of the trust. Knowing what you want to achieve with the trust will help you make other decisions, like what assets to put in it.
- Choose the assets. Decide which of your assets will be included in the trust. Possible assets include stocks, cash, property, and even vehicles.
- Specify the beneficiaries. List all of the people you want to receive the assets in your trust and specify who will receive what.
- Name a trustee. Choose someone to manage your trust, which is called acting as a trustee. When choosing your trustee, choose someone who is trustworthy and qualified.”
- Name an alternate trustee. If, for some reason, your first trustee is unable to continue in their position, have an alternate who can step in and manage the trust.
- Create the documents. In most cases, it’s best to have your attorney help you craft the documents to ensure that they meet all the legal requirements. You can look at sites like Nolo or TrustandWill if you want a cheaper, do-it-yourself, online solution.
- Place copies in safe keeping locations. You should keep a copy of your trust in more than one location so that if something happens
The Risks of Not Having a Living Trust
It’s important to have a will, but it’s also vital to take steps to ensure that your family and loved ones are protected with a living trust. Without a living trust in place, then your estate could end up in disarray after your death.
If you die without a living trust, the process of distributing assets to the beneficiaries can become complicated and even cause friction within the family. Additionally, if your estate is not properly handled after your death, there is the risk of losing money or assets due to taxes or other financial obligations.
A living trust can also provide peace of mind knowing that everything will be handled according to your wishes after your death. With a living trust, you have the power to plan out exactly what should happen upon your death. It ensures that you are in control of your estate.
Should You Have a Living Trust?
Obviously, the ultimate decision is up to you and you must do what you think is best for your family. However, it is important to consider the risks of not having a living trust. Having a living trust in place is one way you can make things easier for your loved ones after you pass away. If you don’t have a living trust and now realize that you do, meet with your attorney to get the process started.