Many people create an estate plan during their lifetime in order to direct how their assets should be managed and distributed upon death. The goal is to eliminate uncertainty and disputes. Estate plans generally include wills and/or trusts, which can be subject to many different laws. These laws will vary between the states.
A living trust is a popular option for people to include in their estate plan. Before creating a living trust, you should become educated about the basics and overall process. Below are some frequently asked questions about living trusts.
1. What is a Living Trust?
A living trust is one that someone creates while alive designating a trustee to manage their assets. It is a legally binding document. The trustee will distribute your assets according to the intentions laid out in the trust upon your death. Some common assets to keep in a living trust include real estate, valuable art, and bonds.
2. What are the Main Benefits of Creating a Living Trust?
The number one reason that people create living trusts is to avoid probate, which is often costly and time consuming. Assets that are named in a living trust will not need to pass through probate and the trustee can just distribute them to the beneficiaries upon the estate holder’s death.
Another major benefit of creating a living trust is the ability to avoid estate taxes, which can add up quickly depending on the person’s estate plan.
3. What is the Process for Creating a Living Trust?
Your state laws will dictate how to specifically create a living trust. However, in order to make it legally binding you will generally need to sign the written trust document and get it notarized. The designated trustee will also need to sign the document.
Keep in mind that the estate holder can name themselves as the trustee, and this often happens. This would allow the estate holder to own and manage the assets. Being able to retain control over their property is a key factor for choosing to do this.
4. Is a Living Trust Different from a Will?
Yes, a living trust is different from a will even though the way they operate is very similar. For example, the property in a will also does not pass to beneficiaries until the estate holder dies. The categories of assets included in living trusts and wills may also overlap.
The biggest difference between a living trust and a will is that as discussed above, a living trust can bypass probate. Instead, the trustee will distribute the estate holder’s property according to the terms of the trust. No court intervention is necessary.
On the other hand, a will needs to pass through probate and will involve court intervention. This will often delay the property distribution and is more costly.
5. Who Would Not Benefit From a Living Trust?
Living trusts typically benefit people with a lot of assets, especially when they are valuable. Other categories of people will not benefit as much from creating a living trust. This typically includes the following:
- Young married couples without a lot of assets and/or children. This is especially true in community property states.
- Individuals who do not own a lot of assets or whose assets are low value.
- Estranged families where it is clear there will be disputes down the road requiring court intervention. This defeats the purpose of a living trust, which is to avoid court intervention via probate proceedings.
6. Are There Other Alternatives to Probate Besides a Living Trust?
Creating a living trust is an optimal choice for avoiding probate. However, another common option is placing property in joint ownership with the person to whom you want to leave the property. This is a common move to make with real estate.
7. Do I Still Need a Will if I Create a Living Trust?
It is still a good idea to have a will even if you have a living trust. They are different instruments, even if the assets included in both overlap. There will still be additional assets in a will if this is the case. For example, a will almost always includes a residual estate, which essentially acts as a catch-all for any assets that you do not specifically name under the will.
A will can also contain any assets you did not want to include in the will, such as items can benefit from passing through probate. It can also include assets that were of lower value but that you still want to pass to a specific person because they have sentimental value.
8. Can I Transfer Property To Living Trust While Alive?
Yes, you will have the flexibility to transfer new property into the living trust while you are alive. You can also transfer property out of the trust during your lifetime. There is no limitation on these actions.
You can also revoke your living trust without needing to have anyone else’s permission. However, one exception is if you created the trust with another person (like a spouse). In this instance, you may need to get their consent to revoke the trust.
Do I Need to Hire a Lawyer to Create a Living Trust?
Creating a living trust is usually not complicated, however, it takes a lot of consideration. A local living trust lawyer can help you put things into perspective and decide which assets would be best suited to go into a living trust and which should pass through probate. A lawyer can also draft your living trust, amend your living trust, and represent you in court if any issues arise.