What is a Living Trust? Everything You Need to Know About Living Trusts

A living trust is a trust that is created while the person creating it (the settlor) is still alive. This type of trust allows the settlor to maintain control over the assets in the trust during their lifetime, and also allows them to appoint someone else (the trustee) to manage those assets after they die. In this blog post, we will discuss everything you need to know about living trusts! We’ll cover what a living trust is, how it works, and why you might want one.

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How Living Trusts Work

A living trust is a legal arrangement in which property is held by a trustee for the benefit of a named beneficiary. The person who creates the trust, known as the settlor, can be the trustee and the beneficiary.

Living trusts are created to avoid probate, which is the court-supervised process of distributing a deceased person’s assets to beneficiaries. Probate can be costly and time-consuming, so some people choose to create living trusts to keep their assets out of probate court.

Types of Living Trusts

There are two types of living trusts: revocable and irrevocable

Revocable Living Trusts

A revocable living trust is a type of trust that can be modified or revoked by the grantor, at any time and for any reason.

A revocable living trust becomes irrevocable upon the death of the grantor.

Irrevocable Living Trusts

An irrevocable living trust is a type of trust that cannot be modified or revoked by the grantor after it has been created.

An irrevocable living trust becomes effective immediately upon creation.

Asset Assignment Within Living Trusts

If you have a living trust, you may be wondering how to go about assigning your assets to the trust. Here are a few things to keep in mind when making your decision.

The first thing to consider is what type of asset you are trying to assign. If it is a physical asset, such as property or a vehicle, you will need to transfer the title of the asset into the name of the trust. This can usually be done by going to your local DMV or county recorder’s office.

For non-physical assets, such as stocks, bonds, and bank accounts, you will need to contact the financial institution holding the asset and fill out any necessary paperwork to change the account into the name of the trust.

Once you have decided how to assign your assets, you will need to designate a trustee. This is the person who will be responsible for managing the trust and its assets. You can name yourself as trustee, but you may want to consider naming someone else if you are not comfortable with the responsibility or do not feel like you have the time to dedicate to it.

Naming a successor trustee is also important in case something happens to you or the original trustee. A successor trustee is someone who will take over managing the trust in the event that something happens to either you or the original trustee.

Designating a beneficiary is another important part of setting up a living trust. A beneficiary is someone who will inherit the assets of the trust when you die. You can name more than one beneficiary and you can also specify how you want the assets to be distributed among them.

You can change the terms of your living trust at any time, as long as you are of sound mind. However, it is important to keep in mind that once you assign an asset to the trust, it may be difficult to get it back out. So, make sure that you are comfortable with the decisions you are making before finalizing anything.

How to create a living trust?

The process of creating a living trust is relatively simple.

Decide the Type of Living Trust

First, you will need to decide what type of trust you want to create. As we discussed earlier, there are two types of trusts: revocable and irrevocable.

Choose a Trustee

Once you have decided which type of trust is right for you, the next step is to choose a trustee. As we mentioned before, a trustee is the person who will be responsible for managing the trust and its assets. You can name yourself as trustee, but you may want to consider naming someone else if you are not comfortable with the responsibility or do not feel like you have the time to dedicate to it.

Naming a Successor Trustee

Designate Beneficiaries

The next step is to designate a beneficiary. A beneficiary is someone who will inherit the assets of the trust when you die. You can name more than one beneficiary and you can also specify how you want the assets to be distributed among them.

Transfer Assets to the Living Trust

Once you have chosen a trustee and designated a beneficiary, the next step is to transfer your assets into the trust. If you have a physical asset, such as property or a vehicle, you will need to transfer the title of the asset into the name of the trust.

Huuraaay!

Once your assets have been transferred into the trust, you are ready to start using it. You can use your living trust just like any other trust – to buy property, invest money, or even give gifts.

And, because a living trust is revocable, you can always make changes to it if you need to. If you decide that you no longer want a particular asset in the trust, you can simply remove it.

Or, if you want to add an asset, you can do that as well.

The only time you cannot make changes to a living trust is if it is irrevocable. As we mentioned before, an irrevocable trust is one that cannot be changed – not even by the person who created it.

If you decide to create an irrevocable trust, be sure that you are comfortable with all of the terms before finalizing anything. Remember, once an asset is in an irrevocable trust, it cannot be removed.

Advantages and Disadvantages of Creating a Living Trust

As with any legal document, there are advantages and disadvantages of creating a living trust. It’s important to understand both before you make any decisions about your estate planning.

Advantages of a Living Trust:

One advantage of creating a living trust is that it can help avoid probate. Probate is the legal process of distributing someone’s assets after they die. If you have a living trust, your assets can be distributed according to your wishes without going through probate court. This can save time and money for your heirs.
Another advantage of a living trust is that it provides more privacy than a will. Wills become public record when they’re filed with the court, but trusts do not. This means that your beneficiaries’ names and addresses will not be available to the public.

Disadvantages of a Living Trust:

One downside of a living trust is that it can be more expensive to set up than a will. You’ll need to pay an attorney to draft the trust document and transfer your assets into the trust. You may also need to file additional paperwork with the court.
Another disadvantage is that a living trust does not cover everything. For example, you’ll still need a will if you want to name a guardian for your minor children or pets. You’ll also need to update your beneficiaries on any accounts that are not in the trust, such as life insurance policies and retirement accounts.

Is a Will the Same as a Living Trust?

No, a will and a living trust are not the same.

A will is a document that outlines how you would like your assets to be distributed after you die. A living trust, on the other hand, is a legal entity that can hold and manage your assets while you are alive.

Differences Between a Will and a Living Trust

There are several key differences between a will and a living trust.

First, with a will, your assets do not pass to your beneficiaries until after you die. With a living trust, however, your assets can be transferred to your beneficiaries immediately upon your death.
Another key difference is that wills must go through probate court before they can take effect, whereas living trusts do not have to go through probate court. Probate court is a lengthy and expensive process, so avoiding it can be a major advantage of using a living trust.
Finally, living trusts are revocable, meaning that you can change them at any time. Wills, on the other hand, are not revocable once they have been signed.

For these reasons, many people choose to use both a will and a living trust to plan for their estate. This way, they can be sure that their assets will be distributed according to their wishes and that their loved ones will not have to go through the stress and expense of probate court.

Similarities Between a Will and a Living Trust

There are also some similarities between a will and a living trust.

Both documents allow you to specify how you would like your assets to be distributed after you die.
And, both documents can be used to appoint a guardian for your minor children in the event of your death.
The main similarity between a will and a living trust is that they both allow you to control what happens to your assets after you die.

Which One Should You Use?

The decision of whether to use a will or a living trust depends on many factors, including your personal preferences and the size and complexity of your estate.

If you have a small estate or if you want more control over how your assets are distributed after your death, then a will may be the best option for you.

On the other hand, if you have a large estate or if you want to avoid probate court, then a living trust may be the better choice.

Who needs a living trust?

You can use a living trust to:

Manage your property
Control how your property is distributed after you die, and
Avoid probate.

If you have minor children, a living trust can also help you plan for their care if something happens to you. You can name a trustee to take over the trust and manage the assets for your children until they are adults. A living trust is revocable, which means you can change it at any time.

You may need a living trust if:

You own property in more than one state. This is because probate is only required in the state where you own real estate.
You want to keep your affairs private. Probate is a court proceeding, which means that it is a matter of public record.
You want to avoid the cost and delay of probate.
You have minor children or other beneficiaries who are not capable of managing their inheritance.

A living trust can be an important part of your estate plan, but it’s not the only tool you need. You should also have a will, Durable Power of Attorney for finances, and Advance Directives for healthcare in place. If you have questions about whether a living trust is right for you, contact an experienced estate planning attorney in your area.

How Much Does a Living Trust Cost?

The cost of setting up a living trust varies depending on the complexity of your estate and the state in which you live. In general, however, it is typically more expensive to set up a living trust than it is to create a will.

You can expect to pay several hundred dollars for an attorney to draft your living trust documents. You may also have to pay additional fees for things like property transfers and filing fees.

If you have a complex estate, you may need to hire an accountant or financial advisor to help you set up your trust. This can add several thousand dollars to the total cost.

Overall, setting up a living trust is usually more expensive than creating a will. However, the added expense may be worth it if it means avoiding probate court.

Paying for a Living Trust

There are several ways to pay for a living trust.

If you have the money available, you can pay for it yourself.

Another option is to take out a life insurance policy and name your trust as the beneficiary. This will ensure that there is enough money to cover the cost of setting up your trust.

You could also use funds from your retirement account to pay for your living trust. However, this may trigger taxes and penalties, so be sure to speak with a financial advisor before doing this.

No matter how you choose to pay for your living trust, be sure to shop around and compare prices before making any decisions.

FAQS

Can you revoke a living trust?

Yes, you can revoke a living trust at any time. This is one of the benefits of having a revocable trust.

If you need to make changes to your trust, you can simply amend it. You will not need to go through the process of setting up a new trust.

Another advantage of having a revocable trust is that it allows you to change your mind about who should receive your assets after you die.

If you have an irrevocable trust, on the other hand, you cannot make any changes without the consent of all trustees and beneficiaries.

How do I know if I need a living trust?

There are several factors to consider when deciding whether or not to set up a living trust.

If you own property in more than one state, a living trust can help you avoid probate in each state.

If you want to keep your affairs private, a living trust can do that because probate is a matter of public record.

And if you have minor children or other beneficiaries who are not capable of managing their inheritance, a living trust can help you plan for their care.

An experienced estate planning attorney can help you decide whether a living trust is right for you.

How long does it take to set up a living trust?

It typically takes about two weeks to set up a living trust. This includes the time it takes to draft the documents and have them signed by all trustees and beneficiaries.

Once the trust is funded, it can take several months for everything to be transferred into the trust.

If you have a complex estate, it may take longer to set up your trust. You may need to hire additional help, such as an accountant or financial advisor.

No matter how complex your estate is, setting up a living trust is typically much faster than going through probate court.

Now that you know everything about living trusts, you can decide if this type of estate planning tool is right for you. If you have any questions, be sure to contact an experienced attorney in your area.

Are living trusts legal in all states in the US?

Yes, living trusts are legal in all states in the US.

They are also legal in many other countries, although the laws may differ slightly.

Can you contest a living trust?

Yes, you can contest a living trust. However, it is important to note that trusts are generally difficult to contest.

If you want to contest a trust, you will need to have a valid reason. For example, you may be able to contest the trust if you can prove that the person who created the trust was not of sound mind when they did so.

You might also be able to contest the trust if you can show that the trustee is not following the terms of the trust.

If you are thinking about Contesting a living trust, it is important to speak with an experienced attorney who can help you understand your legal options.

Are living trusts public record?

No, living trusts are not public record. This is one of the benefits of having a trust.

If you want to keep your affairs private, a trust can help you do that because probate is a matter of public record.

Another advantage of having a trust is that it can help you avoid probate altogether.

Probate can be time-consuming and expensive, so avoiding it can save your family a lot of hassle.

Is property placed in a living trust subject to probate?

No. Probate is a court-supervised process for distributing a person’s assets after death. The assets of a living trust, however, are not subject to probate because they are already legally owned by the trust.

A living trust can be an excellent way to avoid probate and keep your affairs private.