It is a written legal document that partially substitutes for a Will. With a living trust, your assets (your home, bank accounts and stocks, for example) are put into the trust, administered for your benefit during your lifetime
Most people name themselves as the trustee in charge of managing their trust’s assets. This way, even though your assets have been put into the trust, you can remain in control of your assets during your lifetime. You can also name a successor trustee (a person or an institution) who will manage the trust’s assets if you ever become unable or unwilling to do so yourself.
The living trust that is generally preferred is a revocable living trust (sometimes referred to as a revocable inter vivos trust or a grantor trust). Such a trust may be amended or revoked at any time by the person or persons who created it (commonly known as the trustor(s), grantor(s) or settlor(s)) as long as he, she, or they are still competent.
In response to several emails and tweets asking why a trust is so mandatory, Orman spells it out. “A living revocable trust serves as far more than just where assets are to go upon your death and it does that in an efficient way,” she said. Unlike a will, a living trust also covers you while you are still alive, Orman noted.
You must think about what If something happens and you become ill and incapacitated. “Who is going to take care of you and pay your bills?” Orman asked. A key difference between a will and a living revocable trust is that the living trust has an incapacity clause that states who you want to sign for your affairs in the event you are unable to do so for yourself.
—By CNBC’s Sakina Spruell. www.cnbc.com
- Gives the trustee the legal right to manage and control the assets held in your trust.
- Instructs the trustee to manage the trust’s assets for your benefit during your lifetime.
- Names the beneficiaries (persons or charitable organizations) who are to receive your trust’s assets when you die.
- Gives guidance and certain powers and authority to the trustee to manage and distribute your trust’s assets. The trustee is a fiduciary, which means he or she holds a position of trust and confidence and is subject to strict responsibilities and very high standards. For example, the trustee cannot use your trust’s assets for his or her own personal use or benefit without your explicit permission. Instead, the trustee must hold and use trust assets solely for the benefit of the trust’s beneficiaries.
- Avoid the time and expense of Probate
- Can continue to manage your property upon incapacity by your trustee, no court intervention and the degrading process of determining you are incapacitated (costly and very difficult to reverse)
– up to 10% of the value of the estate
– take around 2 years to process
– probate is a public process open to creditors, unscrupulous businesses and friends/neighbors
It can help ensure that your assets will be managed according to your wishes-even if you become unable to manage them yourself.In setting up your living trust, you may serve as its trustee initially or you may choose someone else to do so. You can name a trustee to take over the trust’s management for your benefit if you ever become unable or unwilling to manage it yourself. And at your death, the trustee-similar to the executor of a will-would then gather your assets, pay any debts, claims and taxes, and distribute your assets according to your instructions. Unlike a Will, however, this can all be done without court supervision or approval.
Many people serve as trustees of their own living trusts until they become incompetent or die. Others decide they need assistance simply because they are too busy or too inexperienced or do not want to manage their day-to-day financial affairs.Choosing the right trustee to act on your behalf is very important. Your trustee will have considerable authority and responsibility and will not be under direct court supervision.
You might choose a spouse, adult child, domestic partner, other relative, family friend, business associate, or professional fiduciary to be your trustee. The professional fiduciary could be a licensed, registered individual, or a bank or trust company licensed by the State of California. You may also name co-trustees.
Discuss your choice with an estate planning lawyer. There are many issues to consider. For example, would the appointment of one of your grown children cause a problem with his or her siblings? What conflicts of interest would be created if you name a spouse, child, business associate, or partner as your trustee? And will the person named as your successor trustee have the time, organizational ability and experience to do the job effectively?
Once your trust has been signed, an important task remains. To avoid court-supervised conservatorship proceedings if you should become incapacitated, or the probate process at your death, your assets must be transferred to the trustee of your living trust. This is known as funding the trust.Deeds to your real estate must be prepared and recorded. Bank accounts and stock and bond accounts or certificates must be transferred as well. These tasks are not necessarily expensive, but they are important and do require some paperwork.
A living trust can hold both separate and community property. This makes it convenient for spouses and registered domestic partners to plan for the management and ultimate distribution of their assets in one document. (Note: While registered domestic partners have many of the same rights as spouses, be aware that federal tax law does not provide the same tax benefits for domestic partners as it does for spouses.)
If you own real estate in another state, you might (depending on that state’s law) transfer that asset to your trust as well to avoid probate in that other state. A lawyer from that state can help you prepare the deed and complete the transfer. If the real estate is located in California, a California lawyer should prepare the deed and advise you on transferring such property.
Because living trusts are not under direct court supervision, a trustee who does not act in your best interests may, in some cases, be able to take advantage of you. (In a probate, direct court supervision of an executor reduces this risk.)In addition, the cost of preparing a living trust could, in some cases, be higher than the cost of preparing a will. However, it depends on the particular estate plan. The difference in cost may not be significant if the estate plan is complex.
Also, keep in mind that a living trust can create additional paperwork in some cases. For example, lenders may not be willing to lend to a trust and may require that real property be taken out of the trust (by a deed) before they will agree to a loan on that real property.
A Will also allowsyou to name a guardian for your minor children and covers property intentionally left out of the trust (e.g., cars, personal checking accounts). When you have a Living Trust, the Will is known as a Pour Over Will, where any assets not included in the Will that do not have beneficiaries will be “poured over” into the Trust.
Testamentary trusts and irrevocable trusts are two other types of trusts: Testamentary trusts are trusts that are based on instructions in your will; such trusts are not established until after the probate process. They do not address the management of your assets during your lifetime. They can, however, provide for young children and others who would need someone to manage their assets after your death.Irrevocable trusts are trusts that cannot be amended or revoked once they have been created. These are generally tax-sensitive documents. Some examples include irrevocable life insurance trusts, irrevocable trusts for children, and charitable trusts. A qualified estate planning lawyer can assist you with such documents.