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Living Trusts 101

A living trust is an arrangement wherein the owner transfers his assets to a trustee to be used for the owner's benefits during his lifetime and then pass on to named parties called beneficiaries after the death of the owner.  A living trust is created while the owner of assets is still alive.  Indeed, the trustee could be the owner himself.  However, if this is the case, the owner must select another to take over as trustee when the owner of the assets passes away. 

Terminology

Inter Vivos Trust: Same as a living trust.

Grantor/Settler/Trustor: The person with assets who creates the trust.

Trustee: Person who holds the assets in the trust for the benefit of the intended beneficaries. Among other fiduciary duties, the trustee has the duty to carry out the express terms of the trust.

Beneficiary: The person who is intended to benefit from the arrangements made in a trust.

One of the main advantages of establishing a living trust is that it helps the heirs of property avoid the probate process. It is well known that the probate process can be long and expensive and by establishing a living trust, the owner of property basically transfers the property to the trust and he is no longer the named owner of said property.  Thus, when the owner passes away, the assets in the trust do not have to go through the probate system in order to pass on to the owner’s heirs. 

Further, terms of a living trust are not made public.  Terms of a will, on the other hand, become public once the will enters the probate system.  Thus, a living trust is your option if you want to keep your wishes as to the disposition of your assets private. 

IMPORTANT: Many people establish detailed living trusts, but then forget to transfer their assets to said trsuts. You must transfer your assets to the trust and have a well-funded trust. Otherwise, your assets would be passed according to laws of intestate succession and not what you desired in your trust.

It is important to note that establishing a living trust will NOT protect your assets from the creditors.  Indeed, a creditor can go after the assets that you place in the trust to satisfy your debts. 

Also, it is generally a good practice to have a will in addition to a living trust.  This way, if you die before transferring any of your assets to the living trust, the will can outline the disposition of these assets. 

Generally, it is always a good practice to consult an attorney when preparing important documents such as living trusts and wills.  However, with proper research, one can create a living trust without retaining an attorney.  Further, there are online services that can create a living trust for you for a reasonable price.