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. Transferring assets is typically called “funding.” When you transfer title you DO NOT relinquish any control. You can still 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 want your estate to be handled at your death. However, unlike a will a properly funded trust:
- Does not go through probate.
- Prevents the courts from controlling your assets at incapacity.
- Gives you control over the assets you leave to your minor children or grandchildren.
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 enables you to pass property after your death to family, friends and/or loved ones. It allows you to appoint someone (a successor trustee) to make certain your property goes to the ones you choose after your death.
I thought a will avoids probate?
Many individuals are under the impression that their will alone is sufficient 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 the heirs.
The reason for probate is needed because the owner of the property or asset is deceased. Once the owner of the asset has died, 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. Learn more about probate here.
Will joint tenancy avoid probate?
Putting your children’s name on your property does not avoid probate, rather it only puts it off for a few more years. To learn more about joint tenancy and why it is a poor option click here.
How does a living Trust Work?
For a trust to be effective it has to own title to the property or asset. Remember, when you transfer title of your assets into the trust it is called “Funding your Trust.” Funding is the process of transferring the name on accounts or property to the name of the trust. For example, accounts in the name of Jim and Doris Hart, would now be held as “Jim and Doris Hart, Trustees of the Hart 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 of the trust. You or you and your spouse can be the primary trustees receiving full control to buy, sell, borrow or transfer in the case of a spouse’s death. After both spouses pass, 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’s 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.
Grantor
This is the person who sets up the trust. This would be you. The grantor has many names such as the creator, settlor 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 alive. When a trust is created, the trustees are usually the same individuals as the grantor. For married couples, usually the husband and the wife both act as co-trustees. You do not have to be your own trustee if you do not want to or do not feel you are able to. You can name a child or friend or even an institution to manage your affairs for you while you are alive.
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 need for any probate court. The successor trustee will immediately have the same powers that you as grantor/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 can allow your estate to be transferred to your children or loved ones right away avoiding the time delay of probate which can usually consume anywhere from 6 months to 2 years.
Fortunately for you and for the protection of 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 grantor(s). 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.
Beneficiaries
The people who will receive the benefit of the trust’s assets are called the beneficiaries. Typically the estate will go to the surviving spouse. If there is no surviving spouse, assets will pass to the people you named in your trust. You are not limited to who you want to receive your estate. You can name your children, relatives, friends, or a charitable organization to be your beneficiary.
What happens when I die?
Other advantages of using a Revocable Living Trust include the following:
- If an illness or 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 minor children or others who might not use an inheritance as you intend, the trust can continue to hold the assets until they reach a more mature age.
- If you own real property in more than one state you avoid the expense, time and hassle of multiple probate proceedings.
- By using a trust, a husband and wife can maximize both their federal estate tax exemptions.
- Trusts are generally more difficult to contest than a traditional will. To invalidate a will you must either prove 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 more difficult 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 pending the outcome of a legal challenge. Anyone wishing to contest the trust must file suit against each of the beneficiaries; in the meantime the assets in the trust can be distributed.
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