Meaning of Living Trust
Planning for your asset management while keeping in mind your own demise is Stressful but at the same time crucial for your loved ones.
If you are reading this article, you really care for your loved ones and you are probably on the right track.
Starting your Estate Planning by creating a Living Trust is the best option if you want a hassle-free and inexpensive process of your assets and Property distribution.
Just Like a Last Will and Testament, Living Trusts are documents created by a person known as a “Grantor/Initial Trustee” who puts property into a Trust and enjoys the benefits of it during their lifetime. Upon the death of the grantor, the property is managed by another person called a “Successor Trustee”.
The people who inherit the Trust property upon the death of the Grantor are the “Beneficiaries”.
In Living Trust, Grantor has full control over the property and can enjoy the property till he dies by naming himself/herself as the Initial Trustee. After the Grantor's death, the Trust Property administration is dealt with by the Successor Trustee; in this way, the Successor Trustee works similarly to that of an Executor of a Will.
Types of Living Trust
There are mainly 2 types of Living Trust. These are:
- REVOCABLE LIVING TRUSTS
When people talk about Living Trusts, what they really mean is “Revocable Living Trusts”. These are the most common type of Living Trusts which people usually make because of their Flexibility. The grantor is free to alter or amend the provisions of this Trust anytime before death.
After the death of the Grantor, a Revocable Living Trust becomes an Irrevocable Living Trust. Since the Grantor has died, no other person has the right to make any changes and Successor Trustee is bound to follow the provisions of the Trust.
- IRREVOCABLE LIVING TRUSTS
An Irrevocable Trust is one whose provisions cannot be changed. Property and assets are transferred to these trusts the same way as that of a Revocable Living Trust but once the property is put into a trust it cannot be taken back and you cannot change the beneficiaries.
These are not common and are created usually by wealthy people to avoid Estate Taxes on their properties. Changes to an Irrevocable Trust can be made but the procedure is complicated involving an agreement between the trustee and beneficiaries, sometimes a judge’s order, etc.
Read this article to understand the difference between a Revocable and Irrevocable Living Trust.
What are the Benefits of Creating a Living Trust?
- Avoids Probate
One of the main benefits of a living trust is that its assets don’t have to go through probate. Probate is a judicial procedure whereby the court determines the inheritors of the assets of a deceased person.
- Protects your privacy
Unlike Wills, Trusts are private documents. Since there is no intervention of courts in assets distribution, the Trust document is not made a Public record. No one can ever find out more about your distribution of assets by searching public records.
- Protection of Minor Children
If you have minor children, you might not want them to get ownership of your estate at a small age. You may include it in your trust that you want your minors to receive the property after attaining a specific age. For eg. at the age of 25 or 30 years.
- Ensure the Privacy of your Document
Since Living Trusts avoid probate, they do not become public records like Wills. No one will have the access to your Trust at any stage to know about your distribution.
- Protects you in case of Illness or Incapacity
Apart from specifying the distribution of your assets/property after your death, may also include the steps to be taken care in case of any unanticipated situation like illness or unconsciousness of yours when you are not able to communicate your wishes.
- Avoid Conservatorship with Living Trusts
Conservatorship is the appointment of an agent by the court to oversee the financial management of a person after death or in case of Incapacitation (Incapacitation includes mental illness, physical illness, disability, or addiction to drugs or alcohol).
If you are creating a revocable trust, you can avoid conservatorship and your successor trustee will be the person handling and managing everything in your trust on your behalf.
What type of property can be transferred into a Living Trust?
Not everything you own can be transferred to the Trust. Also, you might want to include properties having high worth as the probate cost for them will also be high. For, example:
- Real-Estate(even if they are mortgaged)
- Valuable Antiques, Art pieces
- Cryptocurrency (Like Bitcoins)
What type of property cannot be transferred into a Living Trust?
Following are the properties/assets which are not recommended to be transferred into a Trust.
- Retirement Accounts
- Health savings account and Medical Savings Account(HSA and MSA)
- Property/Assets owned in a foreign country
- For Retirement accounts and HSA/MSA, you can name the trust as “beneficiary”.
- Cash can be put into a bank account and then added to the Trust.
- Vehicles whose values increase with time (Collectible Cars) can be put into a trust.
- Property owned in a foreign country may require consultation from the estate attorney of that country.
When does a Living Trust Terminate?
A revocable living trust can be revoked anytime and it will no longer exist. All you need to do is:
- Fill out the Revocation form.
- Sign it in front of the Notary Public.
-If you have directed the trust property to be distributed among the beneficiaries soon after your death; it will be terminated once its property/assets are distributed completely.
-If you have specified a specific time for the distribution of trust property, it will terminate once that time has come and the distribution has taken place.
Irrevocable Living Trusts on the other hand cannot be terminated once they are created unless the assets are distributed among the beneficiaries. It is a complicated process to change the provisions of these Trusts as it requires approval from beneficiaries or the court.