What Is a Living Trust?
A living trust is a legal arrangement established by an individual during their lifetime to protect their assets and direct their distribution after the grantor's death.
It is an estate planning tool that can help family members and beneficiaries avoid a lengthy, public, complex, and sometimes costly, probate process.
A living trust is a legal document. The document lays out the terms of the trust and the assets that the grantor assigns to it. A trustee is designated by the grantor as the individual who, at a certain point, will control those assets for the benefit of the beneficiaries.
KEY FACTORS TO SET UP A TRUST
- A living trust is a legal document created by a counsel used in estate planning and set up by someone or a counsel during their lifetime.
- It designates a trustee and provides explicit directions for the distribution of assets after the death of the grantor.
- A trustee manages assets in a trust according to beneficiaries' best interests.
- Living trusts can be either revocable or irrevocable, which differ in terms of tax treatment and conditions of the trust.
- Individuals may prefer a living trust to a will because a living trust bypasses the probate process.
How Living Trusts Work
Living trusts are significant in that they allow a trustee to manage the assets in the trust and transfer them to beneficiaries after the grantor’s death.
They begin with the establishment of a trust instrument during the lifetime of the grantor. This is a legal document that lays out the rules and provisions of trust. Due to their importance and complexity, those arranging for a living trust often work with experienced estate planning professionals/counselors to ensure a proper setup.
Once the living trust is created, the grantor decides what assets should be in it and then transfers the title of those assets to the trust.
Living trusts are managed by a trustee who typically has been appointed by the grantor to manage the trust prudently and in the best interests of the trust's beneficiaries. Beneficiaries are designated by the grantor when they create a living trust.
Upon the death of the grantor, these assets flow to the beneficiaries according to the grantor's wishes as outlined in the trust agreement.
Unlike a will, a living trust takes effect while the grantor is living. The trust does not have to go through probate for assets to reach the intended beneficiaries when the grantor dies or becomes incapacitated.
Assets in a Living Trust
Assets must be assigned to a living trust to be covered by its terms. That means they are re-titled to indicate ownership by the trust.
The types of assets that can be assigned to a trust which can include real estate, bank accounts, personal property like cars, jewelry, furniture and business interests.
Specific financial accounts and items can include:
- Stock and bond certificates and safe deposit boxes
- Mutual fund accounts, brokerage accounts
- Money market accounts, certificates of deposit
- Checking and saving accounts, and cash
- Money owed to the trust
- Life insurance policies
- Annuities
Please hire an experienced Certified Probate And Trust Real Estate Specialist (CPRES) for more resources regarding Probate and Trust
