What is a Living Trust and Why is it so Important?
A living trust is a written trust agreement that your estate planning attorney creates for you while you are living and not incapacitated. Establishing a living trust while you are able is important so that when you become incapacitated or pass away, your assets can be administered by your trustee without court proceedings (i.e. conservatorship or probate).
A living trust is significant because your estate avoids substantial probate attorney’s fees and costs by avoiding the court probate process. In addition, you are able to ensure a smooth transition of the management and distribution of your assets on your incapacity and death by having all of your assets held in one trust and managed and distributed by a person (called the trustee) that you select.
When you create a trust, it is important that your assets (e.g. home, bank accounts, stocks, etc.) are put into your trust (this is called “funding the trust“). This is important because the trust can only govern those of your assets that are held in the name of your trust. If you do not keep your assets in the name of your trust, a probate or another court process may be necessary for the assets you have outside of your trust. There are limited exceptions to the general rule that all of your assets should be held in your living trust. Accordingly, you will want to discuss this with your attorney.
If you create a living trust, you ordinarily have complete control of your assets as trustee until you are no longer able to manage those assets due to incapacity or death. Upon either of those events, your named successor trustee (someone you nominated because you trust them) will then manage and distribute your assets upon your incapacity or death. Your successor trustee can be a family member, friend or third party (e.g. professional fiduciary, trust company, etc.).
A living trust is revocable. This means that you (also called the “Trustor,” “Grantor” or “Settlor”) ordinarily retain the right to amend or revoke the trust at any time during your life.
If you are married, both spouses ordinarily create a joint trust to hold their assets. This allows for a simple transition of your assets upon the death of the first spouse since the assets are held in the name of the trust.
Upon your death, your living trust instructs the trustee to distribute your assets to your beneficiaries named in your trust. Your beneficiaries are the persons you want to receive your assets after your death, such as your children, family members, charities, etc. The distribution of your assets can be tailored for all types of situations, including provisions that set up a trust(s) for minor children, for disabled adults, or that allow your property to be distributed over time rather than all at once. Your estate planning attorney should be able to incorporate your estate planning goals into your living trust.
With a living trust, your estate planning attorney should also prepare a pour-over Will, Durable Power of Attorney for Property Management, Advance Health Care Directive and HIPAA authorization. These documents “round out” your estate plan and set forth provisions for life’s contingencies.