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What is a Living Trust

Updated: Jun 4, 2020

A living trust, is a method of estate planning that, unlike a will, does not begin operation after you die but is in action while you are still living.


A living trust requires increased time, effort, and money while you are living, but in return a trust is easier to distribute after you pass away. Because trusts are more complex and expensive, they may not be necessary for everyone, but if your assets and estate become large enough you may want to consider a living trust.


So then, how does a living trust work?

 

A living trust is a fund where you place your property. Your home, car, investment accounts, bank accounts, intellectual property, and other assets are placed in the trust.


To put your home in a trust, for example, you would change the name on the title of your home from your name, to the name of the trust. The trust is now the owner of your home.


Other assets are placed within the trust in the same manner. You can even name a trust as the beneficiary of your 401(k)s, IRAs, life insurance policies, and certain bank accounts. Doing so will ensure those accounts will move into your trust, when you pass away.


The living trust itself is a document that names the trustee and beneficiaries of the trust. This document also includes any specific directions you may have for the distribution of your property.





A trustee is a living person tasked with the management of the assets within a trust.


If you create a revocable trust you can name yourself as the trustee and change the trust as desired throughout your lifetime. If you create an irrevocable trust, which has certain estate tax benefits, you cannot name yourself as trustee and must give away the right to control the trust.


You will also name a successor trustee to manage the trust in the case of incapacity or death. This person has a fiduciary duty to ensure the trust is used in the best interests of the beneficiaries and will be responsible for managing it until the purpose of the trust is accomplished.


Because a successor trustee is appointed to manage the trust in the case of incapacity a durable power of attorney is not necessary for a trustee to take control of a trust.


Although a trust will avoid probate, when creating a trust you should create a pour-over will, and that will is subject, like all wills, to probate.


A pour-over will is a wide net you cast over all possessions that are not included in the trust. This will transfers- all of those possessions to the trust, meaning any possession you forget to include, or purchase after a trust is created, will be passed to your trust after you die and will be distributed according the provisions of the trust.


Trusts are more difficult to challenge then wills. This adds an extra layer of security to ensure your wishes are carried out after you pass away.


However, if you have a small estate with limited assets, a trust is not likely necessary. A will should be enough to manage your estate with limited time and difficulty. Trusts are primarily used to make it easier to distribute larger estates.


Please contact Hometown Law to begin planning for your future or to determine what estate planning method is right for you.





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