Living trusts let you protect assets you intend to pass down. Part of your estate plan, a living trust offers many benefits including privacy. We’re here to get you set up the right way!
Everything You Need to Know About Living Trusts
What is a Living Trust?
A living trust is a legal document that lets you transfer ownership of your assets into a trust during your lifetime. You're still in charge of these things while you're alive. You determine who gets your stuff when you pass away. Also, a living trust is private, unlike a will that anyone can read when it is submitted to the probate court after you die.
Who Can Create a Living Trust?
One or more individuals, married couples, and businesses can open a living trust. It’s not reserved for only the wealthy. People who own assets (like a house, car, or bank accounts) usually create living trusts.
How Does a Living Trust Work?
You, the grantor, creates and puts assets into the trust. You are the trustee who oversees the day-to-day functions of the trust. You designate who you want to take over as trustee when you die or if you become incapacitated. The beneficiary is the person who gets the benefit of the trust assets. You will be the beneficiary when you are alive and anyone you designate can be the beneficiary after you die. Assets can be added while you’re alive, and they’re distributed upon your death.
Why Set Up a Living Trust?
Living trusts are part of your estate planning process. It gives you control over your assets after death, helps your family avoid legal headaches, and keeps your affairs private. It's a tool for making things easier for you and your loved ones. It also helps you avoid probate.
What Can Go Into a Living Trust?
These typically include real estate, bank accounts, investments, business interests, valuable personal property, intellectual property, life insurance policies, retirement accounts, digital assets, and some debts owed to you. Some people also include certain foreign assets in their living trusts. The trust can encompass a wide range of possessions and financial interests.
When Should You Set Up a Living Trust?
The sooner the better! Because your living trust is revocable, it is also changeable as your life changes. If you get married, divorced, have children, or grandchildren, basically any life event, you can change your living trust to fit your needs.
Set Up a Living Trust
Create the Living Trust
A living trust is usually part of the estate planning process. We prepare your living trust document. It lists the beneficiaries and trustees. There are instructions letting the trustee know how to manage the trust.
Transfer Your Assets
The first step is for the grantor to transfer assets into the trust. To ensure your assets are treated as owned by the trust, you should open bank and investment accounts in the trust's name. Cash and other assets are then transferred into the accounts to make them part of the trust. Putting real estate into the name of the trust is done by a deed transfer recorded in the real estate records. You should work with an attorney to assist with this process to make sure no mistakes are made. If applicable, you identify the trust's ownership of personal items like coins or art. Throughout your lifetime, you can transfer other assets into the trust.
10 Benefits of a Living Trust
- Probate avoidance: This is often the biggest advantage. Your assets can pass to heirs without going through the court-supervised probate process, which can be time-consuming and expensive.
- Privacy: Unlike a will, which becomes public record at your death, a living trust keeps your affairs private after your death.
- Continuity of asset management: If you become incapacitated, your chosen successor trustee can step in to manage your affairs without court intervention.
- Potential tax benefits: For larger estates, certain types of living trusts can help reduce estate taxes.
- Flexibility: You can change or revoke the trust while you're alive, giving you ongoing control.
- Faster asset distribution: Beneficiaries often receive their inheritances more quickly than through probate.
- Avoid conservatorship: If you become unable to manage your affairs, a trust can prevent the need for a court-appointed conservator.
- Control from beyond the grave: You can set conditions on inheritances or create long-term trusts for beneficiaries.
- Reduced chance of legal challenges: Trusts are generally harder to contest than wills.
- Asset management across state lines: If you own property in multiple states, a trust can help avoid multiple probate proceedings.
How to Decide If a Living Trust Is Right for You?
A common misconception is trusts are only for the wealthy. In fact, anyone with any amount of assets can benefit from a living trust.
When deciding if a living trust is right for you, there are several things to think about. First, consider how much stuff you own. If you have a house or money saved, a trust might be useful. Older people or those with health issues often find trusts helpful. If you have young kids or a complicated family situation, a trust can give you more control. If you're worried about someone taking care of your money if you get sick, a trust can help with that. For people at a certain wealth threshold, some trusts can help with taxes.
Living Trust FAQs
Living trusts and wills are both estate planning tools, but they have some key differences. A living trust takes effect while you're alive. You put your assets into the trust and manage them as the trustee. When you die, your chosen successor takes over and distributes assets to beneficiaries. It avoids probate and stays private. A will only takes effect after you die. It cannot take care of you if you become incapacitated. It goes through probate, which is a public court process. The will names an executor to manage your estate and distribute assets. It does things a trust cannot, like name guardians for minor children, specify funeral arrangements, deal with personal property not valuable enough to put in the trust, and direct the payment of debts and taxes.
An asset protection trust and a living trust serve different primary purposes. A living trust is mainly used for estate planning. It helps manage your assets while you're alive and distribute them after you die. It can avoid probate and provide privacy. An asset protection trust, on the other hand, is designed to protect your assets from creditors or legal judgments. It's a way to shield your wealth from potential lawsuits or debts.
Yes. These are two different documents with two different purposes. Because a will doesn’t become effective until you die, it can’t take care of you if you become incapacitated. Most estate plans will include a “pour over will” that pours any assets you own at the time of your death into your living trust so those assets are managed in accordance with your wishes. A will may contain other provisions that will guide your executor and the courts on your wishes..
Yes! You’re still required to meet your financial obligations, but a transfer to a living trust will not trigger a “due on sale” clause in your mortgage.
If your living trust was set up by an attorney (like us), then, yes, it should be valid in a different state. You’ll want to ensure it meets the requirements of your new states. You’ll also want to think about whether your chosen trustee can serve in that capacity while out of state.
AUTHOR
LLC Attorney Team
Welcome to LLC Attorney, where our mission is to make the process of forming and maintaining your LLC as smooth and stress-free as possible. Our team is a dedicated group of professionals with a shared passion for helping businesses thrive.
