One of the important aspects of estate planning is creating a will or a living trust. For the most part, living trusts are the preferable option as they become valid immediately upon your death. On the other hand, a will needs to go through a probate process during which it can be contested. Moreover, the probate process can take a significant amount of time and create a public record of your personal financial information. Creating a living trust will completely avoid the probate process as you transfer assets to the trust and then they pass privately to your chosen beneficiaries through that vehicle. If you have not created a living trust before, the process can seem daunting. However, there are really just a handful of things to think about and do prior to creating the document. The living trust checklist includes:
Who are the grantors?
The person who creates a living trust is called a grantor. In many circumstances, you will want to be the sole grantor. However, it is possible for more than one grantor to exist. For example, if you are married you can open a joint trust with your spouse. While a joint trust can often make your estate plan simpler, they are not always the best choice. Talk with your spouse about the possibility. If you have a blended family, from a second or third marriage, a joint trust may end up being more complicated in the long run.
Who are my beneficiaries?
The beneficiaries of a trust are the people who receive assets out of it. You can name businesses, charities, or people as beneficiaries. Even minor children can be beneficiaries. These entities only receive the assets according to the specific orders you lay out in the trust document. Often, it makes sense to think of beneficiaries before assets. That way, you do not accidentally exclude anyone who should be named as can happen when you start with the assets. Make sure all the people you want to benefit from the trust are clearly identified so you can make the appropriate allocations.
What are my assets?
Your assets are the meat of the trust. After all, the entire point of the trust is to pass these assets along to your heirs. Make a list of all the assets you wish to pass to beneficiaries that will eventually be placed in the trust. Importantly, not all assets you own need to go into the trust. However, any assets not in the living trust will need to go through probate to pass to an heir, so keep that in mind as you make your decisions. Trusts can hold real estate, personal property, life insurance policy proceeds, and financial assets, which include stocks, retirement accounts, and bank accounts. Remember that you will need to reregister, or “re-title” these assets into the name of the trust, so you will need to start gathering titles, deeds, policy numbers, and account identifiers when you fund the trust.
What is my giving strategy?
With a trust, you have control over how assets are distributed to recipients. Some people choose for heirs to receive everything immediately while others prefer a staggered distribution. You can also place limits on a beneficiary’s spending and dictate how the income from investments in your trusts gets used. Think about these topics in a general way and then revisit them with each beneficiary. Also, you should know that there are ways to structure the trust to provide substantial tax benefits, but they often require special structures that are best handled by an estate planning attorney.
Who will oversee the trust?
You can create a revocable or irrevocable living trust. For the most part, people create a revocable trust so they can make changes to the account. With a revocable living trust, you will typically act as the trustee, or the person who manages the account. However, you will need to figure out a successor trustee, the person who will assume responsibility for the account when you die, or become incapacitated. In fact, one of the benefits of using a living trust is the continuity of management that they provide. In other words, your attorney can build into the trust the power of attorney type language that allows your named successor trustee to assume control in the event you can no longer manage the affairs of the trust. There is no need for a court hearing or any filings—your successor trustee just steps into your shoes if he or she is named as such in the trust document-and all of these changes can remain completely private. Any successor trustee is legally bound to handle the assets according to your terms and wishes, but it is helpful to choose someone who is familiar with what you want and is competent enough to handle asset distribution.
What documentation is necessary?
A trust only exists once an agreement is created that details assets to be placed in the account and the relevant information about beneficiaries. Importantly, this document must be created in compliance with the laws of your particular state. You can create the document on your own if you wish. However, you must ensure that the construction complies with what is outlined in your particular state’s law. If desired, you can usually find tools online to help with this compliance. At the same time, it is advisable to spend the money to have an experienced estate planning attorney draft and establish the living trust. This type of estate planning document is not something to skimp on, or to do yourself, in most cases. Also, you will likely need notarization and potentially even an independent witness or two for the document’s creation, and execution.