How to Set up a Living Trust: A Quick & Easy Guide to Estate Planning

A well-thought-out estate plan ensures that your assets are distributed as you wish, protects your loved ones, and minimizes potential legal hassles in the event of your passing. Among the various options available for estate planning, a living trust is one of the most effective and flexible plans you can do. 

What Is a Living Trust?

Also known as a revocable trust, a living trust is a legal document that holds your assets during your lifetime and designates a trustee to manage them on your behalf. 

Unlike a will, a living trust allows you to maintain control over your assets during your lifetime while also simplifying the distribution process after your passing.

Revocable vs. Irrevocable Living Trusts

As the name suggests, a revocable living trust allows the grantor (the person creating the trust) to retain control over the trust assets during their lifetime. This means you, the grantor, can amend, revoke, or change the trust anytime. 

In contrast, irrevocable living trusts cannot be altered or revoked once established except under specific circumstances defined in the trust document. This loss of control is offset by potential tax benefits, including estate tax reduction and asset protection from creditors. 

Here are the key differences between the two:

Revocable Living Trust

• You can amend or revoke it anytime.
• Provides flexibility to manage assets during your lifetime.
• Subject to estate taxes upon death.
• Does not provide asset protection from creditors.

Irrevocable Living Trust

• Once established, it cannot be changed or revoked without beneficiaries’ consent.
• May offer potential estate tax benefits.
• Provides asset protection from creditors.
• Requires careful planning and consideration due to its permanent nature.

Benefits of Getting a Living Trust Done

Probate Avoidance

Probate is a court-supervised process through which the deceased person’s assets are distributed according to their will. When the assets are in a living trust, they pass directly to your beneficiaries upon your passing without court involvement. This can save time and money.

Privacy

Unlike a will, a living trust is a private document. A will becomes part of the public record when it goes through probate, which means anyone can access information about your assets and beneficiaries. A living trust, on the other hand, keeps your affairs confidential.

Incapacity Planning

A living trust can provide for managing your assets if you become incapacitated. You can designate a successor trustee to take over the management of the trust in such situations, ensuring your financial affairs are still managed according to your wishes.

How Much Does a Living Trust Cost?

For a relatively simple living trust, which includes the creation of the trust document and transferring a few assets, you might expect to pay between $1,000 and $3,000. This estimate assumes that you consult with an attorney, and the attorney’s fees are included.

If your estate is more complex or you have specific requirements, such as advanced tax planning or special provisions, the cost can range from $3,000 to $6,000 or more. 

The Process of Setting up a Living Trust

Step 1: Determine Your Goals and Assets

Before creating a living trust, you must identify your goals and the assets you want to include. Common assets to place in a living trust are the following:

• Real estate properties
• Bank accounts
• Investment accounts
• Vehicles
• Personal belongings of value

Step 2: Choose a Trustee

You must appoint a trustee responsible for managing the trust according to your instructions. You can initially choose a family member, friend, or professional trustee. Be sure to select someone you trust to carry out your wishes.

Step 3: Draft the Trust Document

The trust document serves as a legally binding contract that outlines the terms and conditions of the trust. It should include:

• A clear list of the assets you transfer to the trust.
• Instructions for the management and distribution of assets.
• Provisions for potential changes to the trust or revocation.
• Designation of beneficiaries.
• Instructions for the trustee’s role and responsibilities.

It is advisable to consult an estate planning attorney to ensure your trust document is legally sound and complies with state laws.

Step 4: Fund the Trust

Once the trust document is prepared, you must transfer ownership of your chosen assets into the trust. This typically involves:

Real Estate

To transfer real estate into the trust, you must prepare and sign a deed that changes the property’s ownership from your name to the trust’s name. This deed should then be recorded with the appropriate county or municipal office.

Bank Accounts and Investments

For bank and investment accounts, you must contact your financial institutions to change the account titles to the trust’s name. This may require providing a copy of the trust document to the institution.

Personal Property

Assets like vehicles, jewelry, and valuable personal property should be formally transferred to the trust by changing the ownership records. Consult your attorney or relevant authorities for guidance on specific procedures.

Life Insurance and Retirement Accounts

Designate the trust as the beneficiary of your life insurance policies and retirement accounts. This step is crucial to ensure these assets are included in the trust.

Step 5: Sign and Notarize

As the grantor, you must sign the trust document in the presence of a notary public to make it legally binding. Depending on your state’s requirements, witnesses may also be necessary.

Step 6: Review and Update the Trust

Estate planning is not a one-time event. Periodically review and update your living trust to reflect any changes in your life, assets, or goals. By doing so, you can be sure that your trust remains effective and aligned with your intentions.

Is a Living Trust Right for You?

While a living trust offers significant benefits, it may not be the best option for everyone. Here are some scenarios in which a living trust might not be necessary:

• Minimal Assets: If your assets are minimal or your estate is relatively straightforward, a simple will suffice to meet your estate planning needs.
• Younger Individuals: Individuals without significant assets or complex family dynamics may not require a living trust. In such cases, a basic will and durable power of attorney may be enough.
• State Laws: Several states have more straightforward probate processes or no estate taxes, making a living trust less necessary. 
• Comfort with Probate: Some individuals are comfortable with probate or reside in states with efficient probate procedures.

Seek Legal Guidance

Getting a living trust can be a complex process, which involves legal intricacies that vary from state to state. Therefore, seeking professional guidance from an experienced estate planning attorney is highly recommended. Consider seeing one when:

• Your estate is substantial, potentially triggering complex tax issues.
• You have a blended family with multiple beneficiaries and intricate distribution needs.
• You have a business or real estate holdings that require specialized estate planning.
• You have concerns about potential challenges to the trust’s validity.

An estate-planning attorney can help ensure that your living trust complies with your state’s laws, is tailored to your specific needs, and operates seamlessly when the time comes.

Visit our website or call 1-800-508-1729 to start setting up your living trust!

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.