If you've heard something about living trusts but wonder exactly what they are and how they work, this section will give you a quick lesson.
First of all, what's a trust? It's an arrangement under which one person, called the trustee, owns property on behalf of someone else, called the beneficiary. You can create a trust simply by preparing and signing a document called a declaration of trust.
What, then, is a living trust? It's a trust that you set up during your lifetime—usually to avoid probate. Living trusts sometimes go by "inter vivos trusts" because they're created while you're alive, not at your death like some other kinds of trusts. They're also sometimes called "revocable living trusts" because you can revoke them at any time.
You can make an individual living trust or a trust that is shared with your spouse or partner.
A basic living trust does, essentially, what a will does: leaves your property to the people you want to inherit it. But because a trustee owns your property, your assets don't have to go through probate at your death.
When you create a living trust, you appoint yourself trustee, with full power to manage trust property. Then you transfer ownership of some or all of your property to yourself as trustee. You keep absolute control over the property held in trust. You can:
If you and your spouse or partner create a trust together, both of you must consent to changes, although either of you is permitted to revoke the entire trust.
After you die, the person you named in your trust document to be "successor trustee" takes over. This person transfers the trust property to the relatives, friends or charities you named as the trust beneficiaries. No probate is necessary for property that was held in trust. In most cases, the whole thing can be handled within a few weeks. When the property has all been transferred to the beneficiaries, the living trust ceases to exist.
If any of your beneficiaries inherit trust property while still young, the successor trustee (or the surviving grantor of a shared trust) will probably have more responsibility, following instructions you leave in the trust to manage the property until the beneficiaries are old enough to inherit it outright.
In addition to avoiding probate, a living trust offers other benefits.
Avoiding the need for a conservator or guardianship. A living trust can be useful if you become incapacitated and unable to manage your own financial affairs. That's because the person you name as trustee (or the other grantor, if you make a shared trust) can take over management of trust assets, watching over the property for your benefit.
If there is no living trust and you haven't made other arrangements for someone to take over your finances if you become incapacitated, such as preparing a durable power of attorney for finances, a court will have to appoint someone to do the job. Typically, the spouse or adult child of the person seeks this authority and is called a conservator or guardian.
Keeping your estate plan confidential. When your will is filed with the probate court after you die, it may become a matter of public record. A living trust, on the other hand, is a private document in most states.
Because the living trust document is never filed with a court or other government entity, what you leave to whom remains private. (There is one exception: Records of real estate transfers are always public.)
Some states require you to register your living trust with the local court, but there are no penalties if you don't. The only way your trust might become public is if—and this is very unlikely—someone files a lawsuit to challenge the trust or collect a court judgment you owe.
Here are some factors to think about when deciding whether a living trust is right for you:
Your age. If you're under 60 and healthy, it often makes sense to prepare a will, use simple probate-avoidance devices, such as joint tenancy and pay-on-death bank accounts, for some property and leave the more complicated estate planning until later.
The size of your estate. The bigger your estate, the bigger the potential probate cost and the less likely that your estate will qualify for simplified probate proceedings, discussed below. Often it makes good sense to concentrate effort on making sure that major assets, such as real estate or business assets, are owned in a way that will avoid probate.
The type of property you own. You don't need a trust to avoid probate for assets like your bank and retirement accounts and many other types of property. Take some time to learn a little bit about other types of probate avoidance devices before you jump into preparing a living trust; see "Other Ways to Avoid Probate," below.
A living trust cannot completely replace a will. Even if you want to use a living trust to pass all of your property, there are reasons why you need a will, too.
Naming a guardian for minor children. You can't nominate a personal guardian for your young children in a living trust; you need a will in which to do this. See Personal Guardians for Your Minor Children.
Passing property not included in the trust. A living trust works to pass only property you transfer into the trust. Property you may receive after you make the trust won't be transferred unless you add it to the living trust later. For example, if you have inherited property from a relative that is still tied up in probate, or you expect to receive money from the settlement of a lawsuit, you need a will in case something happens to you tomorrow. And because you cannot accurately predict what property you might receive shortly before death, it's smart to back up a living trust with a will.
You can use WillMaker's Living Trust to create an individual or shared basic trust for you or a member of your family. Look for "Living Trust" on the Your Documents screen.