Living Trust Definition
A living trust is a legal document authorizing a trustee to manage a section of assets belonging to a beneficiary during his or her lifetime. An individual may choose a trustee and give him or her the responsibility of taking care of his or her trust. Just as the name sounds, a living trust is a term used to refer to a trust that is active while the beneficiary is still alive.
The designated person can also hand over the assets to the chosen beneficiary. Another term for a living trust is revocable living trust. A revocable living trust is set up to enable an individual to revoke the existing trust and make any changes he or she wishes to.
A Little More on What is a Living Trust
Trustees are the ones mandated to manage living trusts. They must be prudent and act in the best interest of the intended beneficiaries. After an individual has decided about the type of trust and those who will be part of it, a trust agreement prepared. The declaration trust document points out the beneficiary of the trust as well as the trustee.
Rules for the trust have instructions on how the trustee is supposed to distribute the assets and his or her will over the assets. Though a living trust gives you a chance to choose assets you would want to place in trust, most people prefer real estate, bank accounts, or investments. When placing assets in a trust, you are supposed to hand over asset ownership to the trustee.
There is a transfer of ownership from your name to the trustee’s name. For this reason, you will be required to obtain a new title deed in the case of a real estate is involved. When it comes to financial accounts, there is also transfer ownership of the accounts.
Types of Living Trusts
There are two types of living trusts, and they include the following:
Revocable: Revocable trusts are those trusts that allow you to cancel and prepare a new one. Also, with a revocable trust, you are allowed to make any adjustments you wish to make.
Irrevocable: With an irrevocable trust, there is no room for changes once you have signed the document. In other words, you cannot cancel it. For this reason, it is critical for an investor to first understand the terms before signing. However, in this case, people prefer to begin with revocable trust so that they can make changes in case there is.
What Makes Living Trust Different for Other Trusts
Living trusts are different from other trusts. Some of the things that make it different from others are because:
- With a living trust, you can revoke it or make changes to it whenever you want during your lifetime
- You can also act as a trustee for your living trust
- You can use a living trust to avoid the probate process. The probate process involves handing over the property through a will.
- When it comes to a living trust, ownership of assets is with the trustee and not you. For this reason, the terms in the trust document can be bypassed after your death making probate unnecessary.
Benefits of a Living Trust
- You Can Avoid Probate
Most of the living trust distribution is through a supervised court process is known as probate. Probate involves a long process which is also costly. Probate not only reduces inheritance but also delays the distribution of assets to the beneficiary.
However, when you place your property under a living trust, you can easily evade probate. The trustee is able to distribute the assets to the beneficiary without the court’s interventions. Since the court is not involved, the distribution will happen as per the trust owner’s instructions. It makes the process faster and less costly.
- You are Able to Save Money
By avoiding expenses related to probate at your time of death, a living trust is able to save money. Unlike a will, a living trust is able to hold up better and save estate money when someone happens to contest for the distribution.
- A living trust offers protection and Privacy
Unlike a will that can be made available to the public, a living trust becomes a private document once it is signed. It remains private only those parties who are part of the agreement.
- It Helps when you Happen to be Incapacitated
If you happen to be unwell or incapacitated, your trust successor can directly take over the management of your trust without the court’s intervention. Also, given that a living trust is revocable, you can easily dispute the insinuation about your incapacitation. This way, you are able to gain control of your trust affairs.
- Gives you a Peace of Mind and Certainty
A trust with an excellent plan will give you an easy time to deal with your assets. You will be able to avoid disinheriting someone accidentally and also protect unwanted people from accessing their assets.