How to Create a Living Trust

How can you safeguard the wealth that you've earned and pass it on to your heirs? One way is to establish a living trust. This financial arrangement gives someone you choose legal title to your property during your lifetime. This means he or she--not someone the state chooses--will take care of your property should you become incapacitated. Living trusts cost more to create, administer and manage than wills, but they also avoid probate costs, reduce estate taxes, and set up long-term property management. Plus they offer more privacy than wills, keeping your finances out of the courts.

Instructions

Difficulty: Moderate

1. Learn the difference between regular trusts and living trusts. A trust is a legal arrangement where you give control of your property to a trust and name a trustee and beneficiaries. A living trust differs from a regular trust in that it is created while you're alive, and it allows you to control the distribution of your estate and to transfer ownership of your property and assets into the trust. It also allows your beneficiaries to avoid probate. Many times, living trusts are irrevocable--once you give the money or asset away, you can't get it back.
2. Determine if a living trust is right for you. Consider one if your total estate is valued at $100,000 or more; if you will be subject to estate taxes; or if you have a complicated family situation, such as children from a previous marriage whom you wish to ensure receive their share of your estate. An estate attorney will help you figure out if a living trust is what you need. Key questions to ask include: Am I up to the comprehensive recordkeeping duties that come with managing the trust? Do I want to give someone control over my estate if I become incapacitated? Is a will a better option for me?
3. Talk to an experienced estate-planning attorney or a financial adviser. You'll need a lawyer anyway, as most states require that attorneys draft living-trust documents. Ask your local bar association (abanet.org) for a list of reputable lawyers or contact LegalMatch.net. When you interview candidates, look for someone with whom you'll feel comfortable working and whose rates are reasonable. Always have the attorney write out any agreements for services and fees.
4. Protect your family's privacy by avoiding probate. Probate is a legal process where a deceased person's will is filed with the local court, and only after all debts are paid off are any remaining assets and property distributed. Probate costs can range from 2 to 4 percent of the total value of your estate. If your estate comes before a judge in court, your will becomes public, and anyone can inspect it. Keep your affairs private with a living trust, and help your loved ones avoid this costly, time-consuming process.
5. Fund your living trust sufficiently. You can use numerous sources, including bank accounts, bonds, stocks, real estate, personal property and life insurance. You simply need to ensure that the title on these assets is retitled with the name of your trust. Also ensure that you transfer any property you own from your name to the trust's name. An estate-planning specialist, ideally a lawyer or a financial adviser, will be able to walk you through it.

Tips & Warnings

• Read 244 Make a Will and 242 Prepare a Prenuptial Agreement.
• Usually a living trust encompasses a will. (A living trust, however, is not the same as a living will.)
• Any living-trust package should have a cancellation form and a copy of your contract or receipt. The receipt must include the date, name and address of the seller and should state that you have a right to cancel.
• Check out SaveWealth.com for more information about living trusts.
• The trustor is the person(s) establishing the trust. The trustee controls the trust's assets, and can be the same person(s) as the trustor. The beneficiaries are those heirs named by the trustor who will inherit assets after the trustor passes away.
• The AARP does not endorse specific living trust plans. Anyone claiming to have AARP-endorsement is spinning a yarn.
• Watch out for scam artists. Check out anyone who claims to be selling estateplanning tools or making arrangements at prices far lower than standard attorney fees. Start by contacting the Better Business Bureau (bbb.org).