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Understanding the basics of a living trust

Posted by Noah Sarkauskas | Jan 22, 2023 | 0 Comments

A living trust is a legal arrangement in which a trustee holds and manages assets for the benefit of the trust's beneficiaries. It can be a useful tool for estate planning as it can help avoid probate, protect assets and provide for family members with special needs. In this blog post, we will discuss some of the key concepts and principles of a living trust.

What is a Living Trust?

A living trust is a legal document that is created while the grantor, also known as the trustor or settlor, is still alive. The grantor transfers ownership of their assets, such as real estate, bank accounts and securities, to the trust, which is then managed by a trustee for the benefit of the trust's beneficiaries. The grantor can also name themselves as the trustee and retain control of the assets during their lifetime.

Benefits of a Living Trust

A living trust can offer a number of benefits for estate planning and asset protection. Some of the key benefits include:

  • Avoidance of probate: One of the biggest benefits of a living trust is that it can help avoid the time-consuming and costly process of probate. When assets are transferred to a trust before the grantor's death, they do not have to go through probate, which can save time and money for the beneficiaries. It also allows for the distribution of assets to remain private, as probate proceedings are often a matter of public record.
  • Control: The grantor can specify how assets will be managed during their lifetime, and who will manage the assets after their death. They can also specify the distribution of assets to beneficiaries and set up contingencies for unexpected events.
  • Continuity: A living trust can ensure the continuity of the assets even in case of incapacity of the grantor. A trust allows the assets to continue to be managed by a trustee, instead of being frozen and managed by a court-appointed guardian.
  • Flexibility: A living trust can be amended or revoked at any time by the grantor, as long as they are mentally capable. This allows for changes in circumstances, beneficiaries or assets over time.

Setting up a Living Trust

Setting up a living trust is a process that typically involves the following steps:

  • Consultation with an attorney: It's important to work with an experienced attorney who can help you understand the process of setting up a living trust, and ensure that it meets your specific needs and goals.
  • Determine which type of trust is best for you: Depending on your goals, you can choose between a revocable or irrevocable trust, or a combination of both. You should consider factors such as estate tax, asset protection and control over the assets.
  • Identify your assets: Make a list of all your assets that you want to transfer to the trust, including property, bank accounts, stocks and other financial assets.
  • Choose a trustee and beneficiaries: You will need to select someone you trust as the trustee to manage the trust, and name the beneficiaries who will receive the assets. In some cases, the grantor can be the trustee and keep control over the assets during their lifetime
  • Create and Sign the Trust agreement: With the help of your attorney, you will create the trust agreement and sign it, which establishes the trust, the terms, and conditions of the trust, and appoints the trustee and beneficiaries.
  • Fund the trust: This process involves transferring the ownership of your assets from you to the trust by updating deeds, account titles, and other legal documents.
  • Keep the Trust current: Review and update your living trust periodically to ensure that it continues to meet your goals and that it's consistent with your current circumstances.

Keep in mind that the process of setting up a living trust may vary depending on your state laws, and the complexity of your assets and financial situation.

The role of a trustee

The trustee is the person or entity responsible for managing the assets of the trust and carrying out the terms of the trust agreement. Often with a revocable living trust, people choose themselves to be the trustee. The role of the trustee includes:

  • Holding and managing trust assets: The trustee must take possession of and manage the assets transferred to the trust, and invest them in accordance with the terms of the trust agreement.
  • Carrying out the terms of the trust: The trustee must carry out the terms of the trust, including making distributions to beneficiaries according to the trust agreement.
  • Keeping accurate records: The trustee must keep accurate records of trust transactions and provide regular accountings to the beneficiaries and the court, if necessary.
  • Fiduciary duty: Trustees owe a fiduciary duty to the beneficiaries, which means that they must act in the best interest of the beneficiaries at all times.
  • Managing and investing trust assets: Trustees must manage and invest trust assets with care, skill, prudence and attention that a prudent person would use in similar circumstances.
  • Making informed decisions: Trustees must make informed decisions in the management of trust assets and in the distribution of trust income and principal to beneficiaries.

The trustee of a living trust is often an individual chosen by the grantor, and it can also be a bank, trust company, or other financial institution. The grantor can also name themselves as the trustee and retain control of the assets during their lifetime, but it is important to keep in mind that serving as a trustee can be a significant responsibility and might require professional assistance or guidance.

Funding a Living Trust

Funding a living trust is the process of transferring ownership of assets from the grantor to the trust. This step is essential for the trust to be effective and for the trustee to carry out the terms of the trust agreement. The process of funding a living trust typically involves:

  • Identifying assets: Make a list of all assets that you want to transfer to the trust, including property, bank accounts, stocks and other financial assets.
  • Changing ownership of assets: The grantor must change the ownership of the assets from themselves to the trust by updating deeds, account titles, and other legal documents. This process will vary depending on the type of asset, but it typically involves executing a deed, assignment or other legal instrument that transfers ownership of the assets to the trust.
  • Retitling of Accounts: Assets such as bank accounts, investment accounts and retirement accounts need to have the name of the trust added as the new owner.
  • Funding all the assets: It is important to ensure that all assets are transferred to the trust, and that the trust is properly funded so that the trustee can manage and invest the assets according to the terms of the trust agreement.
  • Keeping records: Keep accurate records of all the transactions related to funding the trust, and provide regular accountings to the beneficiaries and the court, if necessary.

It's important to note that not all assets can be transferred to a trust, and that some assets may have special rules or limitations on how they can be transferred. Additionally, funding a trust can have tax implications and it may be necessary to consult with a tax professional to understand and navigate those implications.

Managing and amending a Living Trust

Once a living trust is established and funded, it's important to ensure that it continues to meet the grantor's goals and that it's consistent with their current circumstances. The process of managing and amending a living trust typically involves:

  • Managing trust assets: The trustee is responsible for managing and investing the trust assets in accordance with the terms of the trust agreement. They must take possession of and manage the assets transferred to the trust, and invest them with care, skill, prudence and attention that a prudent person would use in similar circumstances.
  • Carrying out the terms of the trust: The trustee must carry out the terms of the trust, including making distributions to beneficiaries according to the trust agreement.
  • Keeping accurate records: The trustee must keep accurate records of trust transactions and provide regular accountings to the beneficiaries and the court, if necessary.
  • Reviewing and updating the trust: The grantor should review the trust periodically to ensure that it continues to meet their goals and that it's consistent with their current circumstances. The trust can be amended or revoked at any time, as long as the grantor is mentally capable.
  • Amending the Trust: If the grantor decides to make changes to the trust, they should work with an attorney to ensure that the amendment is legally binding and consistent with the grantor's goals.
  • Terminating the trust: If the grantor decides to terminate the trust, they should work with an attorney to ensure that the trust is properly dissolved, assets are properly distributed and all legal requirements are met.

It's worth noting that the laws regarding trusts can vary depending on the state, and that managing and amending a living trust may require the assistance of a legal professional to ensure that all legal requirements are met.

The importance of a comprehensive estate plan.

A comprehensive estate plan is an important step for ensuring that your assets and loved ones are protected in the event of your incapacity or death. A living trust is just one of the many tools that can be used in an estate plan, and it's important to consider the big picture when creating an estate plan.

A comprehensive estate plan should take into account factors such as:

  • Your current financial situation
  • Your family and personal situation
  • Your long-term financial and personal goals
  • Tax implications
  • Provisions for incapacity and end of life care
  • Guardianship for minor children
  • Distribution of assets upon death
  • Charitable giving

By working with an experienced attorney, you can create a comprehensive estate plan that takes into account all of the above factors and puts in place the legal documents needed to achieve your goals. A comprehensive estate plan will also give you peace of mind knowing that you have taken steps to protect your assets and provide for your loved ones in the event of your incapacity or death.

Contact an Estate Planning Attorney at Heritage Law Office Today

At Heritage Law Office, our attorneys have experience in estate planning and can help you create a comprehensive estate plan that incorporates a living trust and other estate planning tools. We understand that estate planning can be a complex and emotional process and we will work closely with you to understand your unique needs and goals and help you create an estate plan that meets your specific needs.

Contact us by calling 414-253-8500 or by sending us a message for a free consultation.

About the Author

Noah Sarkauskas

Bringing technology, automation, machine learning, and a systematic approach to the legal world, Noah Sarkauskas is making the legal field significantly more efficient. Noah leverages technology to complete your legal work in a significantly quicker and more time-efficient matter while simultaneo...

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