If you have taken the all important step of creating a will, you should be commended for recognizing that, without one, your death could create a lot of problems and distress for your survivors who would be left behind to pay final expenses and make some difficult decisions based largely on the direction of the state. By specifying your wishes and organizing your affairs, you will ease the burden on those that will need to assume the responsibility for settling your estate. With that behind you, you may want to consider whether the addition of a living trust would serve your purposes more effectively and ensure greater financial security for your family.

What is a Trust?

A trust is a form of ownership that is established by a person (grantor) to hold title of property prior to its allocation to the surviving family. A trustee is named to manage the trust assets based on specific instructions provided by the trust grantor. Trusts come in many forms, each designed to achieve specific objectives such as to reduce the delay and expense of probate proceedings, minimize the impact of estate taxes, manage estate property, or to maximize the estate for the benefit of the heirs. Some trusts are set up as “irrevocable”, meaning the provisions are final, and cannot be changed once the trust is established. Revocable trusts, however, can be changed while the trust grantor is living. Typically, these types of trusts become irrevocable upon the death of the grantors.

Revocable “Living” Trusts

Also known as an “inter-vivos” trust, a living trust is an estate planning vehicle that can own your assets while you are living. The primary purpose for establishing a living trust is to make your assets more easily transferable to your beneficiaries without the encumbrance and expense of probate proceedings. Once you designate beneficiaries for your trust, all trust-owned assets will pass automatically outside of probate. While you are living, you can be the trustee, managing the assets until you are no longer able, at which time a back-up trustee will assume the duties.

A living trust is revocable which means that any of the provisions and designations can be changed while you are alive. It becomes irrevocable after the death of the grantor, or grantors in the case of a married couple.

In addition to eliminating the expense and delay of probate, a living trust can also ensure that your estate is settled without the publicity of probate. The ultimate benefit for your family is that the transfer of your assets is conducted in a smooth and efficient manner to prevent any disruption in their use by your surviving family.

Setting up Your Living Trust

Setting up a living trust usually requires the services of a trust attorney and an estate planning advisor. In most cases they charge a fixed fee for a standard trust in the range of $1,200 to $2,000 depending on the complexity of your estate. As with any professional service, you can keep the cost to a minimum by doing most of the legwork up front. Here are a few steps to take before seeing an attorney:

Name the Trust Parties
Essentially, these are all of the people who will be effected by the trust, such as you and your spouse (the grantors), your children (the beneficiaries), and the person who will manage the trust asset until they are distributed (the trustee). In most arrangement, the spouses are named as trustees; however, a contingent trustee should be named in the event that both spouses die.

Allocate your Assets
Just about any asset can be owned by a trust. Assets such as real estate, investments, and businesses can be re-titled in the name of the trust. Some assets, such as life insurance and retirement plans pass by designated beneficiary so they may not need to be included.

Specify your Instructions
In addition to assigning assets to specific beneficiaries, a trust can include instructions for the trustee that will guide the timing of distribution and the management of the assets while they are still held by the trust.

Update your Will
Even with a living trust, you still need a will in order to execute the trust. Essentially, the trust becomes the primary beneficiary of your will. In addition, your will acts as a “catch all” mechanism that will determine the disposition of assets that might have been excluded from the trust. Plus, it is your will that establishes guardianship for your children.