What You Should Know About a Living Trust

What is a Living Trust?

Also called an “inter vivo trust,” transfers legal ownership of property from a person into the trust during their lifetime. It is a popular tool in estate planning, with you as the grantor, to protect your assets before and after death. The trust legally owns the property until your death. Upon your departure, the assets in the trust transfer to your heirs as instructed by the terms.

Do I Need a Trust, Will, or Both?

You still need a will, even with a living trust. The will catches any assets you may have forgotten to transfer into the trust and takes care of those items in the will. It transfers them into the trust upon your death. There are other things that a will handles, such as guardians for minor children.

The living trust avoids the probate process for the will. It also allows you to retain control of your assets during your lifetime. This is important should you become incapacitated, as the will only kicks in after your death. You don’t want the court taking over control of your assets, as it can in some cases when you become incapacitated. You need both a will and a living trust.

Basics of a Living Trust

The living trust is a “revocable” trust. This means that you, the grantor, retains control and can dissolve it and change it when desired. You keep full control of the assets, home(s), investments, business(es), and personal property. You can buy, sell, and gift them the same as you could before placing them in the trust.

Transfer of Assets Into the Trust and Successor Trustee

It isn’t a complicated process, but it should involve your attorney, the trust officer, and financial adviser and insurance agent if necessary. Some assets will require changing the name on titles from your name to the trust; this includes real estate, vehicles, investments, bank accounts, etc. You may want to change the name of beneficiaries on some insurance policies to the trust so that the court doesn’t get involved if the beneficiary is incapacitated.

You’ll designate a successor trustee to handle the disposition or management of the trust if you are incapacitated or die. You can choose almost anyone as the successor trustee, from your spouse to children, other relatives, friends, or business partners. You should also name additional successor trustees should something happen to your designated successor trustee.

Control if Something Happens to You

Should you become incapacitated, your successor trustee manages the trust and your assets, handling your financial affairs and paying your expenses. Upon your death, your successor trustee pays your debts, distributes your assets, and files your tax returns. The trustee has control, and without court involvement, your trust is liquidated quickly.

If you set it up this way, your trust can continue after your death. The trustee distributes as the trust instructs, but can manage the remainder of the assets according to the terms of the trust. You may have heirs that can only inherit after they reach a certain age. Or, the trust can manage and fund the care of an heir with special needs.

Time and Costs for Trust Setup

Setting up a trust usually takes only a few weeks unless there are intricate business structures or assets. You’ll need an attorney experienced in trusts; this is very important. Though you’ll have costs for the attorney and other professionals involved, it can be far less expensive than not having a trust and getting the courts involved.

The Trust and Estate Taxes

Your estate will have to pay federal estate taxes for any value over the maximum exemption at the time of your death. There could be state inheritance and estate taxes as well. You can save a significant amount of money in estate taxes if you set up the trust to allow both you and your spouse to claim both of your estate tax exemptions.

Benefits of a Living Trust

It’s impossible to minimize the benefits of a living trust for people with significant assets. These benefits include:

The trust avoids probate after your death, including multiple probates for assets in other states.
You maintain privacy from the courts and others.
Your assets are distributed faster than through the probate process, and exactly as you specify in the trust
Everything, assets, and instructions are in one plan.
It’s easy to set up and maintain.
It’s difficult for anyone to contest, unlike a will.
You can change or cancel it at will.
It protects you or heirs in cases of incapacity.
You control when heirs inherit.
Professional management with the corporate trustee

Overall, there are many reasons to set up a living trust, and almost no factors that would negate its value to the grantor and their heirs.