Your Guide to a Living Trust
What is a Living Trust?
A living trust is a formal arrangement made by a person (the grantor) to safeguard their assets and control how they are distributed once they are no longer physically capable of doing so. It is a strategy that can assist beneficiaries and family members in avoiding a drawn-out, public, difficult, and occasionally expensive probate process.
A living trust is a written legal document that includes how the trust's assets are to be administered for an incapacitated grantor and future beneficiaries. The person (or entity) that will, at a specific time, have control over those assets is appointed by the grantor as a successor trustee.
How Do Living Trusts Work?
Living trusts are important because they permit a trustee to oversee assets and distribute them to beneficiaries after the grantor has passed or becomes indisposed.
They start with the creation of a trust document during the grantor's lifetime. This is a legal document that outlines the trust's guidelines. Setting up a living trust is a fairly complicated and arduous process, which is why those setting up a living trust frequently collaborate with skilled estate planning lawyers to ensure proper execution and any unintended consequences.
The grantor selects the assets that should be included in the living trust and then transfers ownership of those assets to the trust.
The trustee of a living trust is a fiduciary meaning the trustee has a fiduciary duty to operate the trust sensibly and in the beneficiaries' best interests. Beneficiaries are chosen by the grantor when establishing the living trust. Once the grantor passes away or becomes incompetent, the assets of the living trust move into the possession of the successor trustee in accordance with the grantor’s instructions stated within the trust.
Living trusts are different from wills of testament because, unlike a will, a living trust takes effect while the grantor is alive and they do not have to go through probate in order for assets to reach the intended beneficiaries.
Types of Living Trusts
There are two main types of living trusts; a revocable and an irrevocable trust. The most common trust is a revocable trust, which is a trust that remains in control of the grantor until they are no longer capable of maintaining the assets within the trust. Grantors can name themselves as the trustee and can make changes to the conditions outlined in the trust at any time, including named beneficiaries, trustees, the removal or addition of assets, and even the termination of the trust. Revocable living trusts are most frequently used to protect the assets of the grantor should they become ill or die. In either of these cases, the successor trustee would then become in charge of facilitating the conditions of the trust.
Once an irrevocable living trust is created, generally the grantor can’t designate themselves as the trustee, thus waiving certain rights of control over the trust, making the named trustee the legal owner. With an irrevocable trust, the named beneficiaries cannot be changed as the trust instrument is not revokable nor are the terms of the trust amendable by the grantor. If changes are it will require approval from the courts unless a trust protector is utilized in the trust instrument. Once assets are funded into the irrevocable trust you cannot unwind the transfer as it is a completed gift.
There are several advantages to irrevocable trusts. Irrevocable Trusts protect assets from lawsuits and creditors, which can be useful for risk averse beneficiaries. In addition, irrevocable trusts reduce the grantor’s taxable estate because any assets funded into the irrevocable trust are no longer assets belonging to the grantor. Instead, the assets have been placed in the ownership of the trustee for the benefit of the beneficiaries of the trust. Assets from a trust are also not taken into account when being considered for eligibility for certain government programs like Medicare. Consult your estate planning attorney if you are unsure which type of trust is best for you.
Why You Need a Real Estate Planning Attorney
Estate planning can be a complex and stressful process, which is why there is a lot of value in working with an estate planning lawyer when setting up a living trust. An estate planning attorney can help you understand estate planning law and ensure that the wishes of the grantor are being met. Hiring skilled estate planning lawyers for your living trust is the best way to avoid major mistakes and unintended consequences which can lead to money wasted and complications down the road.
When it comes to estate planning, creating a living trust is a great option to consider to protect your assets and the people you care for the most. Pavone Law Group has an excellent team of estate planning attorneys who are ready and willing to walk you through every step of creating a living trust. Protect yourself and your assets by designing and creating a living trust through one of our estate planning lawyers today,
contact us to get started.