Living Trust FAQ

What is a Living Trust?

Living Trusts are legal arrangements in which the trustee holds a property that will one day be distributed to a benefactor. They are often used in order for the trustee to pass down property upon their death to the benefactor while avoiding many of the legal issues surrounding probate law. They are known as “Living Trusts” because they are created before the trustee passes, not upon the event of their passing, as many trusts are.

Living Trusts are powerful tools to use in dealing with estate planning laws, as they can help reduce the tax burden applied to the estate in the event of the owner’s death, as well as provide for more control over the estate while the trustee is still living.

Why would someone need a Living Trust?

Because of the legal issues that often arise in estate planning, a Living Trust can be an effective tool for separating certain assets from the trustee’s formal estate, usually with the intent of passing on the property held by the Living Trust to the benefactor. Living Trusts can also be used to prepare for the financial future of a benefactor who is disabled either mentally or physically and ensure that they are taken care of even after the trustee has passed on.

What is probate and what does it have to do with Living Trusts?

The probate process is the legal process through which the court system distributes the deceased’s property and holdings. Because property that is held in a trust is technically not part of this estate, it is possible to avoid those probate problems through the use of Living Trusts, thus giving the trustee more control over who stands to benefit from their estate upon their passing. Once the process has taken place, the Living Trust will simply cease to exist. In other words, a Living Trust is a way to direct one’s property outside of probate and more directly control “who gets what,” so to speak.

If a Living Trust gives me control, do I still need a Will?

Yes, because a Living Trust only applies to the property that is being held by the Living Trust. Everything else can still be handled by a will. Furthermore, the use of a will can give you control which leads to you not having to create a Living Trust – the end result is that, by using both, you have much more say over what happens to your property after you pass on. Some people believe that by using the Living Trust that they are manipulating the “system” enough to not worry about what happens to the rest of their estate. But if you really want to use the law to your advantage, you’ll use all of the tools at your disposal – including that of a will.

Isn’t setting up a Living Trust a hassle?

Like just about any other legal endeavor, setting up a Living Trust will require that you fill out some paperwork. But as the practice of creating Living Trusts has become more common, it’s actually easier than you think, for example, to transfer ownership of your property to a Living Trust that you then control as the trust’s trustee. You’d be surprised at how intuitive the process can be as soon as you’ve decided that using a Living Trust is the right option for you.

Are there any other helpful protections I get from a Living Trust?

If you’re thinking about protection from creditors, the sad news is that no, you can’t protect your property from creditors simply by transferring it to a trust. Otherwise everybody would be setting up Living Trusts as a way to get out of debt! The good news, however, is that the protections you still get from creating Living Trusts are definitely worth the effort. However, there may be a certain type of protection you’ll want to be aware of, and that is that Living Trusts are not subject to probate, which may mean that creditors have less leeway when it comes to trusts that are being transferred.

How much does it cost to create a Living Trust?

Costs vary based on who is charging you, and for what. Some lawyers will provide the paperwork but will also charge you for the time they help you set up the Living Trust. Other people take the paperwork into their own hands and find the only costs they need to accrue are the costs of acquiring the proper paperwork in their state. Ideally, you’ll want to reduce the cost of your Living Trust, but that doesn’t mean you should go into the interaction without knowing what you’re doing.

When is a Living Trust enforceable?

Once the trust is established, it is enforceable; it does not suddenly become a trust upon your death. Otherwise it would simply be called a trust. Living Trusts are there for you while you’re living – hence the name – and will be enforceable once they’re properly arranged and set up.

What are the requirements for a Living Trust to be valid?

For a Living Trust to be valid, it should meet all the requirements that are established in the paperwork. This might vary from state to state, so be sure that you’re using a Living Trust form that best works in your state. It’s also important to note that your Living Trust should have valid trustees and beneficiaries, though this is often not a challenge if you know what your plans are ahead of time.

When is a Living Trust effective?

It is effective from the moment it is set up (see the question “When is a Living Trust enforceable?”) until the trustee has passed on and the property has been distributed to the beneficiaries, at which point the Living Trust is no longer in existence and, therefore, no longer considered effective. The Living Trust will remain effective for as long as the trustee lives, of course, which means the effectiveness timeline is flexible.