Creating an estate plan is essential for protecting your legacy and assets. If you wait too long to make a plan, the circumstances will be difficult and confusing for your heirs. The best way to prepare your estate is by creating a living trust.
Many people put off creating a living trust because they may feel that it’s something only for wealthy people, that it’s unnecessary or confusing, or that it involves thinking about death. Thankfully, none of these worries are true. A living trust allows you to control what happens to your property both during and after your life. Read on to discover what a living trust is and how to create one.
What Is a Living Trust?
A living trust is a legal document that allows you to distribute your possessions to people and establishments after you die. A living trust is different than a living will in that a living will deals purely with health and medical procedures if there were ever to come a point where you couldn’t voice your wishes.
A living trust, on the other hand, handles your wishes about your assets. Assets held in living trusts do not have to go through probate before they get distributed to the people you’ve chosen to receive your assets. Living trusts can include plans for any kind of assets, including:
- Bank accounts
- Care of pets
The legal document called a Declaration of Trust is created by a grantor. The document names a trustee. The trustee is responsible for holding the assets and managing them according to the directions created by the grantor. Ownership of the assets is transferred to the trustee in order to fund the trust.
When you create your living trust, you can name yourself as the initial trustee so you can keep full control over your assets. You can appoint a successor trustee who will take over the trust upon your death.
There are two common types of living trusts: revocable and irrevocable trusts. Let’s take a look at how they differ.
Revocable Living Trust
When people refer to a living trust, they are most often referring to a revocable living trust. This type of living trust is the most popular and flexible option. If you are the grantor of a revocable living trust, you can cancel or change your trust at any time.
You can edit the trust by putting in more assets, naming new beneficiaries or removing old ones, changing guidelines, and selling off property. Your trust only becomes irrevocable after your death and your successor trustee will have to follow the instructions that were set when they distribute your assets.
Irrevocable Living Trust
In contrast, an irrevocable living trust is a trust that cannot be changed or canceled once it is set in place. You won’t be able to change beneficiaries, sell assets, or update directions. If you want to make any changes, you will need to sign an agreement with all of the beneficiaries or get an order from a judge.
This type of trust is most commonly used by people who want to move assets out of their estate and avoid taxes. Since the trust legally removes the trustor as the owner of assets, taxes can be avoided on the state and federal levels. This type of living trust is more complicated to set up and often requires the assistance of an experienced estate planning attorney.
Organize Your Assets
Now that you know what a living trust is, you can learn the best steps to take for creating your trust. The first thing you should do when you’re ready to create your living trust is to make a list of all your assets. Your assets can be tangible like your house, jewelry, or your car. They can also be intangible like life insurance policies and stocks.
It is helpful to have an organized list in front of you. This list will help you get a clear picture of what you own in your estate and how you would like your assets allocated.
Once you have created a list of your assets, the next step is to find the appropriate paperwork for your assets. Paperwork can include:
- Stock certificates
- Life insurance policies
This paperwork will help streamline the process when you meet with your attorney. Your attorney will be able to get a headstart at transferring your assets into the trust.
Any assets that do not get placed into your living trust can get accounted for in a pour-over will. Pour-over wills state that any assets that have not been funded into your living trust should move to the trust after you die. Designating a guardian for any of your minor children is also something you can include in a pour-over will.
After organizing your assets, you need to decide who will receive the assets after you pass away. The people who receive your assets are called beneficiaries. It is best to have your beneficiaries chosen before you write your trust to help save time and money. Beneficiaries can include:
- Family members
If there is anyone in your life who you feel strongly about receiving no assets at all, be sure to discuss this with your attorney. Make sure everything is clearly dictated so that your beneficiaries don’t get into any legal fights after your death.
Select a Successor Trustee
If you want to name yourself as the primary trustee, as most people do, you will need to choose a successor trustee who will have control over your assets upon your death. The successor will pay any of your debts and distribute your assets when you pass away, so take care in choosing someone you trust.
Create the Living Trust Document
Once all of these preparatory steps have been completed, you will sit down with an attorney and create a trust document. You will sign the trust document in the presence of a notary. Funding your trust by moving your property into it requires paperwork, and working with your attorney will help take the confusion out of the process.
Get Started With Your Living Trust Today
If you’re ready to take the future of your assets into your own hands, start the process of creating a living trust today! If you organize your assets and beneficiaries ahead of time, the process will be a breeze.
Working with an experienced estate attorney like CJB Law will take all of the confusion out of your living trust. Feel confident in your decisions with an empathetic attorney by your side. If you’re interested in learning more, reach out to CJB Law for a free consultation today!