Estate Planning with a Living Trust
You may already have a Last Will and Testament in your estate plan, but if you want to provide for your beneficiaries without the hassle of probate, you might also need a Living Trust.
Living Trust Basics
A Living Trust is a legally-binding document that you (the trustor) create to protect and manage your assets until your death. You have control over the trust while you are alive and can appoint a trustee to oversee the distribution of your estate after you die.
The primary purpose of a Living Trust is to hold your estate until it can be passed to your beneficiaries. Because the trust is created while you are alive, you have control over what assets are included.
Revocable and Irrevocable Trusts
There are two types of Living Trusts — revocable and irrevocable. Either will allow your estate to avoid probate and keep the dispersal of your assets more private.
A Revocable Living Trust can be changed, or even revoked, by the trustor as long as they are still alive and of sound mind. This type of trust does not go into effect until after the trustor dies. In other words, the assets are still considered part of the trustor's estate until their death. A revocable trust is an ideal choice for anyone who wants flexibility in managing their estate and the option to make changes if necessary.
An Irrevocable Living Trust becomes effective as soon as it is created. Assets and property placed in the trust are no longer considered part of the trustor's estate. As its name suggests, an irrevocable trust cannot be changed or revoked. The primary benefits of an irrevocable trust include protection from most lawsuits and exemption from some estate taxes.
A Testamentary Trust differs from a living trust because it is not created until after the trustor dies. The trustor sets the terms in their Last Will and Testament. Testamentary Trusts are generally created to care for minor children or disabled loved ones. A trustee is appointed to manage the trust, and there is no set expiration date.
Setting up Your Living Trust
A living trust is created through a legally-binding document that includes details and instructions. The trustees and beneficiaries are also named. You can hire an attorney to handle the paperwork or create the document yourself without the added expense and time of going through a lawyer. Your trust must be signed in the presence of a notary to be legally valid.
Funding Your Living Trust
There are several ways to fund the living trust:
Transfer property titles from your name into the name of the trust
Move assets from a financial account or insurance policy by changing the beneficiary of the account to the trust itself
Revoking Your Living Trust
If you set up a revocable living trust, you have the option to revoke it at any point. You may have to sign paperwork that attests to your mental soundness to make important decisions.
To revoke the trust, you will essentially need to undo the actions you took to add assets and property. Transfer the property titles and change the beneficiary information on financial accounts from the trust to another beneficiary. The last step of canceling a living trust is to sign and notarize a Revocation of Living Trust form.
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