Define Living Trust Funds
A living trust is a legal arrangement that allows you to transfer control of certain assets to a trustee. Unlike a will which provides for the distribution of your assets after your death, a living trust allows you to manage your estate while you're still alive. A trust may be established in conjunction with or independent of a will. You may consider establishing a living trust if you have a large estate or minor children.
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Types
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A living trust can generally be classified as either revocable or irrevocable, depending on its terms. A revocable living trust is one that can be changed or revoked by the trustee at any time and for any reason. An irrevocable living trust is not subject to changes or revocation once it becomes effective. Once property is transferred to a beneficiary through an irrevocable living trust, your right to it is terminated.
Establishing a Living Trust
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While the specific guidelines for establishing a living trust may vary from state to state, the basic process is the same. A living trust fund is created when an individual, typically known as the grantor, drafts a legal document often referred to as a declaration of trust. The declaration must include the names of the trustee, successor trustees and beneficiaries. Once the trust is created, you must fund it by transferring your property and assets to the control of the trustee.
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Role of the Trustee
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Depending on your individual situation and the size of your estate, you may choose to act as your own trustee or you may appoint someone else to do so. You may choose to appoint a spouse, an adult child, another relative, a family friend, a business associate or a financial professional to serve as trustee. Consult your state's law to determine if there are any exclusions regarding who may serve as trustee. The trustee's primary responsibility is to manage the assets of the estate. This may include paying bills, distributing funds to beneficiaries or managing your long-term care should you become incapacitated.
Living Trust Benefits
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If you have a large estate, a living trust may benefit you in a number of ways. First, it allows you to avoid probate, a legal process by which your assets are distributed following your death. Probate can take months or years to complete, and a living trust fund allows your assets to be distributed to your heirs much faster. A living trust may also allow you to reduce the amount of estate or inheritance taxes owed at your death, although you should consult an attorney to determine how you can benefit.
Considerations
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You should consider drafting a separate will to provide for the distribution of any property or assets that were not included in the living trust. A living trust does not shelter your assets from creditors in the event of a civil lawsuit. A qualified estate planning attorney can guide you in determining whether the cost of establishing a living trust is justified by the size of your estate and your individual needs.
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References
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