A living trust is an estate planning tool that is often used as a will substitute. The benefit is that, if done properly, a trust can keep your family completely out of the legal probate process when you pass away.
When you create a trust, you transfer assets such as a home, financial accounts and personal property to the trust. These assets are then managed for your benefit during your lifetime, and either continue to be held and managed or transferred to your beneficiaries when you die.
The creator of the trust, also called the grantor, normally names him or herself as the initial trustee in charge of managing the assets, which allows them to remain in control of the assets during their lifetime. For all practical purposes, nothing changes in the way the grantor manages or controls the assets after they are put in trust, often the only difference is the named owner.
A successor trustee is named within the trust document, usually a family member or friend but sometimes an institution such as a bank, law firm or trust company may take over Trustee duties. This successor trustee then will manage the trust assets for the benefit of the grantor if the grantor becomes disabled and for the named beneficiaries after the grantor dies.
Living trusts have become popular tools in estate planning over the past decade, but how do they benefit an estate plan?
1. Living trusts and avoiding probate
Trusts allow property to avoid probate when you die, as you do not own the property, the trust does. But this benefit may be somewhat overused, as only property held within your name will be subject to probate, not jointly owned property. Thus, the living trust may benefit estates that have a large amount of property in sole ownership.
2. Living trusts and establishing a blueprint
A living trust sets up a ‘blueprint’ of sorts for handling your property should you become incapacitated, as a successor Trustee can take over at that time. You are also able to specify your wishes within the trust documents, right down to how you would like money to be spent.
3. Living trusts and maintaining privacy
Living trusts are normally private documents, while wills become public record when filed in Probate Court, thus many prefer using a living trust as a will substitute to keep a family’s financial affairs private.
A Living Trust attorney can advise you whether it’s within the best interests of your estate plan to create a living trust, as well as other approaches that may benefit your particular needs.