Want to make sure that after you’re gone your family inherits your property without having to deal with red tape, probate lawyers or the government? Most people find that establishing a revocable living trust allows them to better control the distribution of their estate and shelter it from all of those inconveniences. And such a trust can be canceled or changed at any time.
Under a revocable living trust, ownership of a home, along with other property and assets, is transferred into the trust. You can serve as trustee or can appoint someone else to serve as trustee. If you serve as trustee, you appoint a successor to serve as trustee upon your death.
Properly drafted and executed, a revocable living trust can help your survivors avoid the long delays involved in probate, and probate fees, because the assets are owned by the trust.
What probate means
Probate involves inventorying and appraising the property, paying debts and taxes, and distributing the remainder of the property according to the will. When you make a living trust, your surviving family members can transfer your property quickly and easily, without probate. More of the property you leave goes to the people you want to inherit it. A married couple can use one basic living trust to handle both co-owned property and separate property.
It’s best to consult with your attorney, accountant, tax, investment or estate advisor — by and large they’ll offer similar advice on making a living trust work. For a trust to be effective it has to own title to the property or asset. When you transfer title of your assets into the trust it is called funding your trust. Funding is the process of transferring the name on accounts or property to the name of the trust.
When the assets are in the name of the trust there is no need for probate since the estate is now controlled by the trustee. You or you and your spouse can be the primary trustees receiving full control to buy, sell, borrow or transfer in the case of a spouse’s death. After both spouses pass, the trust identifies the person who will act as successor trustee. The trust gives that person the right to manage all assets on behalf of your wishes made known in the trust document.
Roles in a trust
There are several different roles to be performed by different people involved in the trust. You, as the person who sets up the trust are the grantor. But the grantor has many names such as the creator, settlor or trustor. As the grantor, you have full control to manage or change the trust at any time.
The trustee is the person who will manage the assets in the trust. Again, this will most likely be you while you are alive. When a trust is created, the trustees are usually the same individuals as the grantor. For married couples, usually the husband and the wife both act as co-trustees. You do not have to be your own trustee if you do not want to or do not feel you are able to. You can name a child or friend or even an institution to manage your affairs for you while you are alive.
The successor trustee is the person who will manage your assets for you when you die or if you should become incapacitated. This person or persons will have the right to manage your affairs without the need for any probate court. The successor trustee will immediately have the same powers that you as grantor/trustee had to buy, sell, borrow, or transfer the assets inside the trust.
More importantly, the successor trustee has the right to distribute the trust’s assets according to your instructions in the trust. This immediate control can allow your estate to be transferred to your children or loved ones right away, avoiding the time delay of probate which can often take from six months to two years.
Fortunately for you and for the protection of your heirs, the successor trustee does not have the legal right to change your trust. The trust becomes irrevocable or unchangeable after the death of the grantor(s). However, the successor trustee does have the right to manage the assets in the estate, but must do so for the benefit of the beneficiaries.
The people who will receive the benefit of the trust’s assets are called the beneficiaries. Typically the estate will go to the surviving spouse. If there is no surviving spouse, assets will pass to the people you named in your trust. You are not limited to who you want to receive your estate. You can name your children, relatives, friends, or a charitable organization to be your beneficiary.
Benefits of a trust
If an illness or accident leaves you incapacitated, your successor trustee can handle your financial affairs without the need for a court appointed guardian or conservator. If the beneficiaries of your trust are minor children or others who might not use an inheritance as you intend, the trust can continue to hold the assets until they reach a more mature age. If you own real property in more than one state, you avoid the expense, time and hassle of multiple probate proceedings. By using a trust, a husband and wife can maximize both their federal estate tax exemptions.
Trusts are generally more difficult to contest than a traditional will. To invalidate a will you must either prove it was signed under duress or that the maker was incompetent on the day it was signed. To invalidate a living trust you would have to prove it was invalid not only on the day it was signed but each and every day it was in existence thereafter.
When a will is contested the assets are frozen and they cannot be distributed until the claim is resolved. Assets placed in a living trust are not frozen pending the outcome of a legal challenge. Anyone wishing to contest the trust must file suit against each of the beneficiaries; in the meantime the assets in the trust can be distributed.
Online legal services say you don’t need a lawyer to create a trust. They add that creating a living trust takes about the same amount of time and is only a little more complicated than making a will. If your circumstances aren’t complicated, they say, and you are willing to invest a few hours of your time using an estate planning book or software, you can create a valid, effective trust document.
Jeff writes about real estate, mortgages and homeownership.