A living trust is a document that, much like a will, directs the transfer of your property at death. However, unlike a will, a living trust can be used to transfer your property privately, and without the need of probate court. Also, unlike a will, a living trust can be used to avoid a guardianship if you become incapacitated.
There are three parties to a trust:
- The trust’s maker is called the grantor. The grantor establishes the trust.
- The trustee is named in the trust document, by the grantor. The trustee is charged with managing the property inside of the trust according to the terms of the trust.
- The beneficiary is the individual(s) for whom the trust property is managed.
With living trusts, commonly the person who establishes the trust (the grantor), names himself as both trustee and beneficiary. In this way, when her assets are transferred into the trust, the individual maintains the same level of control of her assets and doesn’t lose any of the benefits.
The trust would contain instructions as to how the grantor’s assets that have been transferred to the trust should be distributed after his death. Since the grantor’s assets are in trust and the trust directs where the assets go at death, there is no need to for the assets to go through the probate court.
The trust would also contain instructions as to who would replace the grantor as trustee should he become disabled. The assets that have been transferred into trust, are controlled by the trustee as named in the trust document. Since the trustee is in control, there is no need for power of attorney over those assets or a guardianship appointment.
Living trusts have these other characteristics:
- They can be amended at any time while the grantor is alive and well without court oversight;
- They can be revoked at any time;
- Property can be transferred in and out of the trust at any time;
- During the grantor’s lifetime, property inside of the trust receives the same tax treatment as if it were out of the trust.
An important distinction of a living trust in comparison with a will, in addition to avoiding probate, is that a trust can conatin instructions as to how best for the property to be received. Whereas the will can only transfer property outright to an individual, a trust is needed when an outright distribution would be inappropriate. The most common example of this is in the situation of planning for minor children. Minor’s cannot hold title to property. Any property left to a minor in a will would be controlled by the court in a guardianship appointment until the child turned 18. Most parents prefer that the property be managed by a trustee until the child reaches an appropriate age (often later than 18). Other situations where leaving property in trust may be appropriate include leaving property to:
- a beneficiary with special needs;
- a beneficiary who may be subject to lawsuits;
- a beneficiary who may be likely to divorce;
- a beneficiary who does not manage finances well due to disability, disposition or substance abuse
- a surviving spouse when there are children from a prior relationship
It’s important to note that probate, both for guardianship proceeding and after death, can only be avoided through living trust based planning if the grantor has transferred her property into trust during her lifetime. So, it is important to still have a will and a power of attorney to serve as back-ups should not all of the property be transferred.
Brady Cobin Law Group PLLC Can Update Your Trust
At Brady Cobin Law Group, PLLC, we would be happy to review your trust or create a new plan to meet your needs for the immediate and distant future. Contact us today to get started.