Estate planning involves a common yet incredibly complicated set of laws. Generally, estate planning seeks to eliminate uncertainty over how property and assets will be distributed at the time of one’s death. The most common categories of estate planning are wills and trusts. Living trusts are an increasingly popular option.
1. What Is a Living Trust?
A living trust is a legal document that manages a person’s assets for them during their lifetime; upon the person’s death, the assets are passed to whomever is named in the trust. You can use the trust to gather your property in one legal document in order to distribute it after your death. Common types of property put into these types of trusts include:
- Bank accounts
2. How Does a Living Trust Work?
How a living trust works will depend on the laws of the state. Generally, the person making the trust signs a trust document, takes the document to a notary public, and then transfers the property by the terms of the trust. The notary requirement is common in many states, particularly if there is real property involved.
Many people who create the trust name themselves as the trustee. This means they have the power to retain control over their property while they are alive. When you put your property into a trust, the trustee will own the property and you will no longer be the legal owner of the property. You still have control over the property and can manage the trust.
3. Is a Living Trust Different from a Will?
Yes. However, the two function very similarly. The biggest difference between the two is, unlike a will, a trust bypasses probate. Probate is a court process that can be long and costly. A living trust skips this process and the property is distributed by the terms of the trust without any court intervention.
4. Does Everyone Need a Living Trust?
These types of trusts are not for everyone. The following individuals will probably have no need for a living trust:
- Young married couples – Married couples without serious assets or children, a living trust is unnecessary. This is particularly true in community property states.
- Individuals with small assets – People who do not have many assets have no need for a living trust.
- Estranged Families – For people who have troubled familial situations or estranged family members, and want to avoid disputes or more "bad blood," court supervision over their estate can help. Thus, a living trust will not be a good idea.
5. What Are Some Other Alternatives to Probate?
If someone is seeking to avoid probate, they may also consider joint ownership of the property with the person they would like to leave it to. If probate is not a concern, or the individual fits into one of the categories above, there is no harm in simply drafting a will. In fact, even if there is property in a living trust, it is advisable to have a will as well.
6. Does a Living Trust Avoid Estate Taxes?
One of the main reasons people create a living trust is to avoid estate taxes.
7. Do I Still Need a Will?
Yes. A will and living trust are different from eachother and having one does not substitute for both. A will deals with any property that was not included in the living trust. Anything that was not left in your living trust may be distributed under your will or residuary estate. Anything that is transferred to your living trust will be protected by the provisions of the trust.
8. Can I Transfer Property To Living Trust While I Am Alive?
Yes. After the execution of the living trust, you may transfer any property in and out of the trust whenever you want. You may even revoke the entire living trust without anyone's permission. However, if the trust is shared with another, you may need consent.
9. Should I Hire a Lawyer?
Estate planning is extremely complicated and if you are writing a will or considering drafting a living trust, consulting with an experienced estate planning lawyer can help ensure your assets are distributed by your wishes.