What is Living Trust?
“If you have not created a will or a living trust, or need to update them but still haven’t done so, then you need to read the estate planning.”
A living trust, also known as a Revocable Living Trust or a Family Trust, is a legal document that holds title or ownership to your real property and assets. When you create a Revocable Living Trust, you transfer ownership of your assets to the trust, which is typically called “funding”. However, when you transfer the title, you DO NOT relinquish any control. You would still be able to buy, sell, borrow or transfer.
To many, the living trust looks a lot like a will. It includes the details and instructions for how you would like your estate to be handled upon your death. However, unlike a will, a properly funded trust:
- Does not go through probate
- Prevents courts from controlling your assets due to incapacity
- Gives you control over the assets you leave to minor beneficiaries
Will I lose control of my assets?
No! The living trust is a written legal document that allows you, as the trustee(s), unlimited access to and full control of your assets during your lifetime. It also allows you to pass property after your death to family, friends, and/or loved ones. It allows you to appoint someone (a successor trustee) to ensure your property goes to the ones you choose after your death.
I thought a will avoids probate?
Many individuals believe that their will alone is sufficient enough to avoid probate. Unfortunately, a will is simply an expression of your wishes and must go through some kind of court process before the assets can be distributed to their heirs.
The reason why probate is necessary is because the owner of the property or asset has passed away. Once they have passed, the probate court is the legal process needed to take their name off the title of an asset and put it in the new owner’s name.
Will joint tenancy ownership avoid probate?
Putting your children’s name on your property does not avoid probate, but merely puts it off for a few more years. To learn more about joint tenancy and why it is a poor option, make sure to keep track of the coming write-up.
A fully funded, revocable living trust will avoid probate
How does a living trust work?
For a trust to be effective, it has to own the title to a property or asset. Remember: when you transfer the title of your assets into the trust, it is called “Funding Your Trust”. Funding is the process of transferring the name on the accounts or property to the name of the trust. As an example, accounts in the name of Bill and Mary Stevens would now be held as “Bill and Mary Stevens, Trustees of the Stevens Family Trust dated “date signed and year”.
When the assets are in the name of the trust, there is no need for probate since the estate is now controlled by the trustee. You or you and your spouse can become primary trustees with full control to buy, sell, borrow, or transfer in the case of a spouse’s death. After both spouses have passed, the trust identifies the person who will act as successor trustee. The trust gives that person the right to manage all assets on behalf of your wishes made known in the trust document.
Remember: you and your spouse will decide who will manage all affairs.
Who is involved in my living trust?
To better understand the trust, we thought it would be important to explain the different roles of the people who would be involved with it.
Settlor
This is the person who sets up the trust, which would be you. The settlor has many other names such as the creator, grantor, or trustor. As the grantor, you have full control to manage or change the trust at any time.
Trustee
The trustee is the person who will manage the assets in the trust. Again, this will most likely be you while you are still alive. When a trust is created, the trustees and the settlor are usually the same individuals. For married couples, usually, the husband and wife act as co-trustees. You do not have to be your own trustee if you do not want to or feel unsuitable for it. You can also name a child or a friend, or even an institution to manage your affairs for you while you are still living.
Successor Trustee
This is the person who will manage your assets for you when you die or if you should become incapacitated. This person or persons will have the right to manage your affairs without the involvement of any probate courts. The successor trustee will immediately have the same powers that you as the trustee had to buy, sell, borrow, or transfer the assets inside the trust. More importantly, the successor trustee has the right to distribute the trust’s assets according to your instructions in the trust. This immediate control will allow your estate to be transferred to your children or loved ones right away, avoiding the time delay or probates which can take between 6 months to 2 years.
Fortunately for you and your heirs, the successor trustee does not have the legal right to change your trust. The trust becomes irrevocable or unchangeable after the death of the settlors. However, the successor trustee does have the right to manage the assets in the estate but must do so for the benefit of the beneficiaries.
You can choose more than one person to work together as successor trustees.
Beneficiaries
The people who will receive the benefit of the trust’s assets are called beneficiaries. Typically, the estate goes on to the surviving spouse, but if there is no surviving spouse, the assets will go to the people named in your trust. You can name anyone – children, relatives, friends, charitable organizations – to be your beneficiary.
What happens when I die?
After you pass away, your successor trustee or co-trustee will have the same responsibilities as an executor if you prepared a will. However, since your trustee does not have to report to a probate court, everything can be done more efficiently and privately.
Other Advantages of Using a Revocable Living Trust
In the instance that an illness or an accident leaves you incapacitated, your successor trustee can handle your financial affairs without the need for a court-appointed guardian or conservator.
If the beneficiaries of your trust are minors or those who might not use the inheritance as you intended, the trust can continue to hold the assets until they come of age.
Trusts are generally more difficult to contest than a traditional will. To invalidate a will, you must either: prove that it was signed under duress, or that the maker was incompetent on the day it was signed. To invalidate a living trust, you would have to prove it was invalid not only on the day it was signed but each and every day it was in existence thereafter. It is almost impossible to contest a living trust. When a will is contested, the assets are frozen and they cannot be distributed until the claim is resolved. Assets placed in a living trust are not frozen while the outcome of a legal challenge is still pending. Anyone who wishes to contest the trust must file suit against each of the beneficiaries; in the meantime, the assets in the trust can be distributed.
