What is the difference between a Living Trust and a Will?
A trust is a legal structure in which one person, known as the “trustee,” manages property for the benefit of another person, known as the “beneficiary.” The trustee is the legal owner of the property and owes the trustee a fiduciary duty. The grantor establishes the trust by entrusting their property to the trustee to benefit their chosen beneficiary. The grantor does not have to appoint a trustee; instead, they may choose to be the trustee themselves. The trust is commonly referred to as a “revocable trust” since the grantor can revoke it.
What is a “living” trust, though? A living trust, sometimes known as a “inter vivos” trust, is established during the grantor’s lifetime rather than after their death.
A Living Trust’s Terms and Conditions
The trust contract itself contains all of the provisions of the trust. This normally takes the form of a “Declaration of Trust,” which is governed by local law, so make sure to check your state’s rules. The trustee has a legal responsibility to operate the trust following the trust’s terms and local legislation. For example, many courts have held the trustee accountable for lost revenue when the trustee fails to invest effectively to grow the trust fund.
The Advantages of a Living Trust
Living trusts are intended to prevent the need for probate. Probate is the legal procedure of paying debts and distributing property to heirs when someone passes away. This is a time-consuming and pricey procedure. Heirs might expect to wait months before obtaining anything, and by the time they do, court costs and attorney’s fees have depleted the assets dramatically.
Other reasons for establishing a living trust include:
- lowering taxes;
- ensuring financial confidentiality; and
- Assets are used in a regulated way (in case the owner becomes incapacitated).
Additionally, all documents, including wills, that pass through probate become public records. However, living trusts are not subject to probate. They are never made public.
The courts use the probate process when a property owner has not chosen who the property should go to after her death. However, all property transferred through the living trust avoids probate. The trustee transfers ownership of the property to the beneficiary named in the trust instrument when the grantor dies. Unlike probate, which can take months, this normally takes a few weeks. It saves money because there are no lawyer’s fees or court charges to pay while settling a trust. The trust ceases to exist after all of the property in the trust fund has been transferred to the beneficiary following the stipulations of the trust agreement.
The Cost of Establishing a Living Trust
A trust, like a will, is not too difficult to set up without the help of a lawyer. There are numerous self-help books and computer programs that assist people through the process of creating a Declaration of Trust, which is the document that establishes the trust. Of course, if you have any legal questions, you should always see an attorney.
Living Trust Maintenance Requirements
There is a significant amount of documentation involved. The grantor must write and sign new deeds each time she adds an asset to the trust after creating the Declaration of Trust. For instance, if the grantor wishes to transfer her home to a trust beneficiary, she must sign a document stating that she owns the property as trustee of her living trust. Although this documentation may be time-consuming, the process has become considerably more efficient as living trusts have become increasingly popular.
In a living trust, creditors and property are named.
All assets kept in the living trust are susceptible to valid debts during the grantor’s lifetime and after his death. If your home is held in confidence and goes to your children after you die, a creditor may demand that your children pay the debt up to the value of the residence. Due to title regulations, real estate ownership is always a part of the public record, and this is how creditors can figure out who inherited the property. Because a will is instantly a matter of public record, finding these heirs in a trust is more difficult than in a choice. However, when real estate passes to heirs through a living trust, the creditor must go through the title search procedure, which can be a lengthy and arduous process that may not be worth the creditor’s time.
The Importance of Having a testament as Well
A clause in a will that specifies the recipient of all property that isn’t specifically bequeathed to a beneficiary is common. For example, if someone acquires possession of a car shortly before death and does not mention it in his final testament, the title to the vehicle may not have been transferred to his trust, and that car would be subject to probate if he died without a will. On the other hand, the car would belong to the recipient listed in his will if he chose, including the condition above.
Estate Taxes and Living Trusts
Some living wills can help you save money on your estate taxes. Simple living trusts have no tax implications, while more intricate living trusts with multiple valuable assets can significantly cut estate taxes.
An AB trust (also known as a “credit shelter trust,” “exemption trust,” “marital life estate trust,” or “marital bypass trust”) is a special type of trust created for married couples with children. Each spouse gives property to the other spouse in trust for the rest of their lives and the children. For example, if the Husband and Wife establish an AB trust and the Husband dies, the Wife inherits the trust’s real estate, and the wife’s interest in all of the property passes to their children when she dies. This AB trust has the potential to save tens of thousands of dollars in estate taxes.
For further information about living trusts, contact an attorney.
Although setting up a living trust requires more paperwork than just allowing your assets to go through probate, living trusts can save your estate a lot of money and time after you pass away. If you still have questions about “what is a living trust?” or need assistance setting one up, you should speak with an experienced estate planning attorney in your area.