Key Takeaways

• A living trust is one of the common estate planning tools which also known as inter vivos trust. It creates during your (asset contributor) lifetime.

• Living trusts can help you avoid the court-supervised probate process, allowing your assets to be distributed to your heirs with minimal hassle.

What is a Living Trust?

A living trust is a legal arrangement created by an individual (known as the settlor) during their lifetime to protect their assets and direct their distribution after their death. It is an essential estate planning tool that provides a flexible and efficient way to manage assets, helping your beneficiaries avoid the lengthy and costly probate process.

How Does a Living Trust Work?

A living trust takes the form of a legal document, laying out the terms of the trust and detailing the assets the settlor assigns to it. The settlor designates a trustee to manage these assets.

When the settlor establishes a living trust, they transfer the title of specific assets—such as real estate, bank accounts, jewelry, stocks, digital assets and investment properties—to the trust. Although the trust technically owns these assets, the settlor can maintain control and manage them as they did before, particularly if the trust is revocable.

Unlike a will, which only takes effect upon death, a living trust is effective during the settlor's lifetime, allowing for proactive asset management and bypassing probate entirely when the settlor passes away.

Types of Living Trusts

Living trusts come in two primary forms: revocable and irrevocable.

Revocable Living Trust

A revocable living trust allows the settlor to maintain full control over the assets and terms of the trust. The settlor can serve as the initial trustee and make changes—such as adding beneficiaries or removing assets—at any time. This flexibility ensures that the settlor can adapt the trust to their evolving needs. When the settlor passes away, the trust typically becomes irrevocable, and the assets flow to the beneficiaries as intended, without going through probate.

Irrevocable Living Trust

In contrast, an irrevocable living trust transfers control over the assets to a designated trustee, and the settlor relinquishes ownership. This means the settlor cannot easily change the trust or retrieve the assets without specific, often court-approved, conditions. However, irrevocable trusts offer several advantages, such as protecting assets from creditors and reducing the settlor's taxable estate, making them useful for those vulnerable to lawsuits or seeking to reduce estate taxes.

Advantages of a Living Trust

1. Avoiding Probate: One of the primary benefits of a living trust is that it avoids probate—a court-supervised process that is often time-consuming, costly, and public. Assets held in a trust can be distributed quickly and privately, sparing loved ones the stress of dealing with probate courts.

2. Privacy Protection: Unlike wills, which are public documents, living trusts keep information about your assets and beneficiaries private, preserving the confidentiality of your estate.

3. Flexible Control: A revocable living trust provides the settlor with flexibility to modify the trust terms and maintain control over the assets during their lifetime.

4. Asset Protection: A living trust can shield assets from creditors and legal challenges, making it a valuable option for those at higher risk of lawsuits.

   
   

Disadvantages of a Living Trust

1. Initial Costs: Establishing a living trust requires legal assistance, which can incur initial costs. Additionally, transferring assets such as real estate may require filing fees and legal changes in ownership.

2. Complexity in Transfers: Properly transferring assets to the trust requires attention to detail. Not doing so might leave certain assets subject to probate, undermining the purpose of the trust.

   
   

Living Trust vs. Will

While both a living trust and a will are essential estate planning tools, they serve different purposes, particularly when it comes to avoiding probate and protecting privacy.

A living trust allows assets to bypass probate, which is a court-supervised process that can be lengthy, costly, and public. By avoiding probate, assets in a living trust can be distributed quickly and efficiently, without the time-consuming and expensive procedures that probate often involves. Additionally, probate proceedings are public, which means that anyone can access information about your estate. A living trust, on the other hand, keeps these details private, ensuring that your beneficiaries and their inheritances remain confidential.

How to Create a Living Trust

To create a living trust, the following steps are typically involved:

1. Determine the Type of Trust: Decide whether you need a revocable or irrevocable trust based on your estate planning goals.

2. Designate Beneficiaries: Identify who will receive your assets and in what proportions.

3. Choose a Trustee: Appoint a trustee to manage the trust. This can be a trusted family member, friend, or a professional trustee.

*Read our extended article on 'What Is a Trustee? Trustee Duties, and Responsibilities' that help you understand more about the role and responsibilities of a trustee.

1. Draft the Trust Document: Work with an estate planning attorney or your trustee to prepare the trust document and ensure all legal requirements are met.

2. Transfer Assets: Transfer ownership of your chosen assets to the trust. This step is crucial for ensuring those assets avoid probate.

   
   

Conclusion

A living trust is a versatile and effective tool for managing your estate both during your life and after your death. By allowing for privacy, avoiding probate, and providing a seamless process for handling assets during incapacity, a living trust offers peace of mind to settlors and beneficiaries alike. While setting up a trust involves costs and complexity, the advantages of smoother asset distribution and greater control make it a worthwhile consideration for many individuals.

To learn more about how UTGL can assist you in setting up a living trust, contact us today. UTGL offers comprehensive trust services with a focus on privacy, efficiency, and personalized solutions. Our team is ready to help you create a tailored plan that meets your unique needs, ensuring that your assets are managed and distributed according to your wishes.