Setting up a living trust is an important part of planning the distribution of your estate. A living trust is a legal document that acts as a substitute for a will. If you have children, or specific people you want your estate to pass on to, setting up a living trust may be a viable option to consider.
What is a Living Trust?
A living trust is a legal document and should be prepared by a professional lawyer. Assets such as a home, bank accounts, and stocks should put into the living trust and managed during a person’s lifetime. The first step in creating a living trust is to create a trust document which is similar to a will. The person who transfers property into a trust is referred to as the “grantor”. The trust document also names a trustee to take over the supervision of the assets upon the grantor’s death and beneficiaries who will receive the assets will be directly transferred to upon death.
One benefit of a living trust is that the grantor can name himself or herself as the trustee and have full control of their assets. Although the grantor may still act as the trustee of the living trust, the assets will be owned in the name of the trust. A successor trustee can also be named who will control the assets in the trust in situations when the grantor is unable to.
Establishing a living trust is necessary if you wish to avoid probate after death. Probate is the process where the court will validate and enact a will. It can take an extremely long time for the court to complete the distribution of property. A living trust can help avoid the time consuming process of probate and it ensures that a person’s assets will go to the beneficiaries intended to receive it.
Funding the Living Trust
Once a trust is established, it must be funded by transferring assets into the trust and changing the ownership of the property from your name to the name of the trust. The living trust agreement will give the trustee the right to manage the assets held in the trust. Valuable assets such as a real estate, bank accounts, and vehicles should be transferred into the trust.
Transferring assets such as investments and bank accounts may be as simple as contacting the financial institution and filing certain forms. In some cases, it may be easier to keep personal bank accounts out of the trust so they may continue to be used without complications. Other personal property such as jewelry or collectibles can be put place into a trust fund as well. In order to do so, the pieces of property must be named on the trust document and it must be indicated that the ownership is being transferred to the trust.
The laws regarding transferring vehicles into a living trust varies by state. In California, trusts are able to hold ownership of vehicles, but it is important to find out if the state in which you reside will allow a trust to hold ownership of a vehicle. It is also necessary to consult with your insurance company to confirm that the insurance coverage on a vehicle will remain even if the vehicle is held under a different name. Transferring a vehicle can be done by registering the name of trust as the owner at the Department of Motor Vehicles. It is important to remember that if a vehicle placed under the trust is involved in an accident, the legal process may become extremely complicated.
There are also disadvantages of establishing a trust fund. There is always a risk that the successor trustee will not act in favor of the grantor’s best interests and take advantage of the assets. Since a living trust fund would avoid probate, the distribution of property will not be supervised in court.
It is important to understand the benefits of putting assets into a trust. The greater the value of your assets, the more benefits establishing a living trust will provide. Preparing a living trust may also be more costly than creating a will; however, it may be beneficial in the long run depending on the individual’s situation.