A living trust is a legal device that is set up to carry out the wishes of the trust-maker or grantor. A living trust is set up when the grantor is still living and may reserve their control over the provisions of the trust.
A trust usually sidesteps the probate (a process by which your will is carried out after your death by court-appointed executors). The grantor transfers his/her property and assets to a trustee through a living trust.
The trustee is then legally responsible for managing and distributing the property according to the instructions laid out in the trust agreement.
Difference Between a Trust and a Living Trust
A trust is broader and encompassing term used for an instrument used for putting assets under trusteeship and to be later passed on to the beneficiaries.
Whereas a living trust is a type of trust that is specifically created by a living grantor.
Trusts can be categorized as living trusts, family trusts, joint trusts, and special needs trusts. The living trusts are more commonly known as “intervivos trust” and are further subdivided into revocable living trusts and irrevocable living trusts.
The most popular of these is the family trust. If the beneficiaries are the family of the grantor, then it is called a family trust.
Things to Consider When Creating a Living Trust
To create a living trust, you’ll have to consider a lot of factors. The process itself can be somewhat lengthy, time-consuming, and costly.
But if you do it right, the trust can help you stave off unnecessary taxation and probate. Creating a living trust is a process that many people find daunting.
However, you can create living trusts online as well. So, when starting out to create a living trust online, you need to follow a few simple steps.
The following is a rundown of the major considerations:
Revocable and Irrecoverable Trusts
To start off, you need to consider your requirements for establishing a trust. Based on your requirements, you can either establish a revocable or an irrevocable trust.
As the names imply, the provisions of a revocable trust can be revoked or altered at any time the grantor so wishes.
The irrevocable trust is permanently set in stone when the ink on the signing has dried, meaning it is inflexible and cannot be easily altered, barring certain conditions.
Moreover, under certain conditions, like when the grantor passes, given that a few other conditions also exist, a revocable trust can convert into an irrevocable one.
Create a list of Assets
Creating a list of assets will include everything you own. Make sure you jot down all of your assets and property estates before you start setting up a trust.
Having such a list will provide you with a clear picture of your assets and will assist you in deciding how you can distribute them according to your own wishes.
The assets list may include:
- Personal property
- Motor vehicles
- Art, collectibles, stamps, coins, and other valuable items
- Money in savings accounts, stocks, bonds, and other securities
- Insurance policies
- Retirement benefits
- Real estate
Who Would Be the Trustees?
Once you have listed all your assets, it’s time to appoint trustees. The grantor can appoint more than one trustee. In many cases, the grantor will appoint himself/herself as the trustee.
The trustee can be any competent adult. The trustees have complete control over the assets. The most common and possible trustees can be:
- The grantor
- The spouse of the grantor
- Any descendant of the grantor who is alive and of age at the time the trust is created
- Any third-party who can be trusted to act on behalf of the descendants of the grantor.
Appointing Successor Trustee
A successor trustee is someone appointed in the trust document who is supposed to pick up the mantle from the previous trustee, in case of the previous incapacitation or death.
In a living trust, the trustee manages and administers the assets, but, in case the trustee is no longer able to continue performing their duties, the responsibility can then be passed on to the successor trustee.
Choose the Beneficiaries
A living trust is used to safeguard assets and straighten out estate planning affairs for the benefit of the beneficiaries, which may include the grantor of the trust, their family, or any other individual or company.
Therefore, the purpose of establishing a trust can only be said to have been fulfilled in case of the existence of beneficiaries.
Apart from your spouse or children, there are other options that you could consider for beneficiary appointments, i.e., relatives, friends, or even organizations.
The guardian requirement is only needed in case there are minor kids appointed as beneficiaries in a trust.
Guardians are supposed to manage the proceeds from a trust on the minors’ behalf until they come of age.
Given their importance in the case of the special condition mentioned above, you should appoint a guardian or a list of guardians for the trust. The guardian will be responsible for the custody and care of your children.
However, if you don’t declare a guardian, the court can then decide on who the guardian should be.
Declaring a guardian in your living trust will save your children from probate and court hassles.
Living trusts are legal tools established in order to pass on the benefits of the proceeds from assets and estate planning to beneficiaries already named within the text of the trust.
A living trust, or trust of any kind, enables grantors to avoid probate and quickly distribute assets to the heirs.
While drawing up a living trust, you should be clear on the requirements, the type of trust you need (revocable or irrevocable trust), who the trustees and beneficiaries will be, and whether or not you need a guardian.