Did you know that sixty-eight percent of people in the United States don’t have a will? They’re completely unprepared if they die. Of these people, most have probably never heard of a living trust.
If you die without a will or a living trust, that kicks off a process known as intestacy. This means that your estate will go to your spouse and any children that you might have. However, for unmarried couples or those without children, intestacy majorly complicates things.
Having a living trust can save you from all of that trouble. If you’re interested in learning more about it and setting one up, then read on.
What Is a Living Trust?
A living trust is a legal document that is created during an individual’s lifetime. It involves three parties: the trustor, the trustee, and the beneficiary.
The trustor is the person who creates the trust, also called a grantor. The trustee is the person that the trustor places in charge of the trust being created. The beneficiary is the person who will eventually benefit from the creation of the living trust.
In a living trust, the trustee is given the responsibility of managing the trustor’s assets for the eventual good of the beneficiary.
A living trust is designed to allow for the easy transfer of assets. This bypasses the complicated and expensive process of determining a will’s validity, which is often known as probate. This serves to make it a preferred method over wills for some people.
In a living trust, it is the responsibility of the trustee to be sure to manage the trustor’s assets as they deem necessary for the good of the beneficiary. Upon the death of the grantor, the assets go to the beneficiary as designated, bypassing probate.
It may sound complex, but you’ve got nothing to worry about. In the end, a living trust helps both you and the people you love.
Living Trusts vs Wills: What’s the Difference?
Though the differences between living trusts and wills are subtle, there are several of them.
A will is a legally binding document that contains information on how you want your assets, affairs, and property handled after your death. This can also contain information on how to dispose of your remains and how to go about a memorial or funeral.
While creating your own will isn’t hard, it’s best to do one with an attorney to make sure everything is well-worded. Lists of family heirlooms, debts and assets, and properties and cars are commonly found in a will.
You can leave your assets to whoever you specify, and even outline things like who should have guardianship of your children.
Living wills, which are different from both wills and living trusts, include information such as different types of medical decisions made ahead of time.
The biggest difference between a will and a living trust is that the process of a living trust is more streamlined. They are put into place while the trustor is still alive and executed smoothly after their death. Living trusts, unlike wills, can also often skip the process of probate.
While wills are a good way to handle specific wishes, living trusts can be used to make sure the delivery of assets goes as it should.
Types of Trusts
When it comes to trusts, there are two main living trust options: revocable living trusts and irrevocable trusts. The differences between these two are easy to understand.
In a revocable living trust, the trustor remains the trustee. They can alter or even void the trust at any given time. If a beneficiary has a falling out with the trustor, the trustor can remove the beneficiary from the trust.
An irrevocable trust is pretty much the opposite of a revocable trust. Once this type of trust is complete, the trustor cannot alter or void the trust unless they get the signatures of everyone involved. This is because as soon as the trust maker signs the final documents, all of their assets are transferred out of their name.
When dealing with a revocable trust, the taxes are still yours to pay. With an irrevocable trust, you do not own the assets anymore and don’t have to pay the taxes.
It’s important to note that once the trustor dies, a revocable trust becomes irrevocable and the trustee cannot change anything.
Each type of trust has its own pros and cons. Try to consider them carefully and decide which one would work better for you and the other parties of the trust.
When Is a Living Trust Needed?
Creating a living trust is a good way to go about protecting both your assets and protecting yourself.
As stated before, a living trust allows for your assets to avoid going through probate. Avoiding probate means avoiding any of the expensive fees that result from probate, which protects your assets.
Living trusts also help to protect your privacy, unlike a will would. When a will is executed, its contents become a matter of public record. The contents of a living trust, however, remain private.
Living trusts are also executed much faster than wills are. This means that you don’t have to worry about your family after your passing, as they will receive their inheritance sooner than they would have.
In short, creating a living trust is something that should be considered. If you decide you want the protection it offers, that means it’s a much better decision than making a will would be.
If you decide to make a living trust, you should also make an appointment with an attorney as soon as possible. It’s important to have things like this prepared whenever you might need them.
How Do You Make a Living Trust?
The process of making a legal trust is a lot more simple than it sounds. To do this, you need to make something called a trust agreement. This is a legal document created similarly to the steps required to create a corporation.
A trust agreement doesn’t need to be written by a lawyer. However, it would be smartest to consult with a lawyer when making one. The trust agreement describes how assets placed into the trust will be managed or otherwise controlled.
Unlike with a corporation, however, a trust is not considered an entity of its own. You cannot enter into contracts with a trust, or sue a trust. If you want to take legal action against a trust, you need to target the trustee.
After you’ve made a trust agreement, the next step is simple. All you need to do to create the trust is sign the trust agreement. Then, everything is technically out of your hands.
To make a trust, there needs to be understanding that you are creating a trust agreement. The trustor also needs to have full mental capacity to have the trust be valid. Other than that, as long as the trust is legal, you’re all set to go.
Living Trust Mistakes to Avoid
When making a living trust, you might stumble upon mistakes that could easily be prevented. It’s important to look out for these mistakes. Otherwise, it might void the living trust.
Perhaps the biggest mistake you could make would be to underfund the trust. When you create a living trust, you need to remember to actually transfer your assets into the trust. This usually means making sure to transfer titles over to the name of the trust instead of leaving them in your own name.
You also need to be sure to keep the trust up to date – which is why you should consider a revocable trust. This way, you can alter or remove certain things from the trust. If your family circumstances change, you can also add a beneficiary.
Lastly, make sure that you name a trustee successor in case they need to step up. It’s a big job with a lot of responsibility. They need to be aware and understanding of that rather than being surprised by it.
Sign Up for a Consultation
Now that you’ve learned everything you need to know about living trusts and how they work, you’re ready to take the next step and work with someone to make one. There’s nowhere better to create a living trust than with us.
We consult on all kinds of various issues, and creating a living trust is well within our wheelhouse. You can contact us here in order to get started with your living trust today.