Living trusts have grown in popularity over the last two decades. A living trust (or an inter vivos trust) is a common estate planning tool as well as a tool to manage a person’s assets while they are alive. As its name suggests it is a type of trust created during one's lifetime and is managed for the benefit of the person who creates it. The participants in a trust are: the creator of the trust, the grantor; the person who benefits from it, the beneficiary; and the person who manages it for the beneficiary, the trustee. In a living trust all three may be the same person. When creating the trust the grantor places assets they own into the trust which then become property of the trust.
Versus a Will
One advantage over a will is that a trust is not probated. Since probate is public the deceased person’s estate must be publicly divulged, the beneficiaries of a trust receive their gifts in private. At the time of the grantor’s death the assets automatically pass to the trust beneficiaries, who are listed in the trust itself. Also, unlike a will, a trust takes effect as soon as it is created, not when the person dies. Most state laws also require that a trust be made separately from a will. If directions to setup a trust are in a will that section of the will is usually void.
A living trust may also be revocable; which means the grantor may change or even cancel the trust at any time. In some states a living trust must be revocable. Also, in most states a revocable trust will become irrevocable when one of the listed beneficiaries dies.
The grantor may also create a living trust as a test. The grantor may establish the trust in any way they like and if it does not work as planned they can change it or just eliminate it. If you add a relative as a beneficiary and that person does not act in a way that you want, they spend too much too soon or buy things you don’t want your money to go to; that person can be removed as a beneficiary.
Plan for the Future
A living trust may also take the place of having to plan for a guardian in your later years if you become incapacitated and unable to make decisions. The grantor would transfer assets to a trust and name themselves and a trusted relative or professional trustee as a co-trustee. If the grantor later becomes incapacitated the co-trustee would then take over managing the trust for the grantor’s benefit. A power of attorney may also be created for property not initially moved to the trust. Upon the grantor’s incapacity the attorney would move the additional property into the trust, which is then managed for the grantor’s benefit by the trustee.
A trust may be a helpful estate planning tool for people of different income levels and type of property owned. An experienced estate planning lawyer can explain the details of living trusts in your state and what benefit you may receive from creating one.
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