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Living Trusts 

Living Trusts

A living trust is one way a person can pass property to family members and other loved ones after their passing. A living trust works differently than a will, and is often used in conjunction with a simple will. 

A will contains instructions as to how property should be distributed after the creator’s death, and has no legal effect during their lifetime. In contrast, property is transferred to a living trust during the grantor’s lifetime.

How Living Trusts Work

When property is placed in trust, ownership of that property is transferred to the trust for the benefit of certain named beneficiaries. One or more trustees is appointed to manage the trust on behalf of the beneficiaries. A trust may be either revocable–meaning that the person who creates the trust can terminate it and take back the property–or irrevocable.

A living trust differs from other types of trust in that when the trust is created, the person transferring property to the trust plays all three roles: grantor/creator, trustee, and beneficiary.

While the grantor is alive. they can continue to use the property just as they did before it was transferred to the trust. They are free to spend money in the trust in any way they choose. They may sell trust property. And, because living trusts are revocable trusts, they retain the right to dissolve the trust and take back the property at any time.

When the trust is created, the grantor names a successor trustee to manage the trust after their death, or if they should become incapacitated. The grantor also names one or more successor beneficiaries to receive the benefits of the trust after their passing. The trustee then follows the grantor’s instructions, which may involve transferring property directly to beneficiaries or holding it in trust and making periodic or event-triggered payments to the beneficiaries.

Just as the grantor is free to use or dispose of trust property during their lifetime, they are also free to make changes to the trust. That includes changing the trust beneficiaries.

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What are the Advantages of a Living Trust?

One benefit of a living trust is that property may be transferred more quickly and cost-effectively than through probate. It’s typically quicker because the successor trustee can step in immediately and begin managing the trust. Passing property through the probate estate can take months, or sometimes a year or more.

The greater efficiency of a living trust is especially important if you own a home or other property that your beneficiaries may need immediate access to.

Passing property through a living trust instead of a will also offers the family more privacy. A probate estate is a court proceeding, meaning that it is public record. But, trusts are administered privately, outside the court system.

What Type of Property Can Pass Through a Living Trust?

Virtually any property you own can be transferred to a living trust. However, it’s important to note that after the trust is created, it’s up to you to ensure that property you acquire is titled properly. For example, if you purchase a new vehicle and want it to pass through the living trust, you must list the trust as the legal owner of the vehicle rather than your own name.

Any property you are holding in your own name when you pass away will become part of your estate rather than passing through the trust.

Living Trusts and Wills

In most circumstances, your attorney will suggest a simple will in combination with your living trust. The will acts as a safety net to cover any property that you may have forgotten to title to the trust or for some reason decided to retain in your own name. One common way of creating that safety net is a will that directs that any property in your estate be distributed to the living trust. That way, the trustee handles all property that is to be distributed to your beneficiaries or managed for their longer-term benefit.

Talk to an Estate Planning Attorney

The right combination of documents and plans differs depending on your circumstances, your property, your beneficiaries, and even the state you live in. The best way to create a custom estate plan that protects your interests during your lifetime and your heirs and beneficiaries after your passing is to work with an attorney to find the right solutions for you and your family.

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