Understanding Living Trusts
A living trust can help organize how property is managed during your lifetime and transferred after death. But creating the document is only part of the process. Your assets, title, beneficiaries, and trust funding should all work together as one coordinated plan.
A revocable living trust is a legal arrangement created during your lifetime to hold and manage property for the people or purposes you choose. When properly established and funded, a living trust can provide continuity during incapacity and allow trust assets to transfer according to your instructions after death, often without the ordinary probate process. State laws and individual circumstances can affect how these benefits apply.
What Is a Living Trust?
A living trust is created while you are alive. With a typical revocable living trust, you can generally continue to control, manage, and use the property placed in the trust during your lifetime.
The trust also provides instructions for who can manage trust property if you become unable to do so and how the property should ultimately be distributed to your beneficiaries.
Trustmaker
The person creating the trust establishes the plan, identifies the beneficiaries, and determines how trust property should ultimately be managed and distributed.
Trustee
The trustee manages property held in the trust according to the trust agreement and applicable law. In many revocable living trusts, the trustmaker initially serves as trustee.
Beneficiaries
Beneficiaries are the people, organizations, or other permitted recipients designated to benefit from the trust according to its terms.
Why Is It Called a Revocable Living Trust?
“Living” means the trust is created during your lifetime. “Revocable” generally means you retain the ability to amend or revoke the trust while you have the legal authority and capacity to do so.
That flexibility is one reason revocable living trusts are commonly used as the foundation of an estate plan.
In a typical arrangement, you continue to manage and benefit from trust property during your lifetime, subject to the trust terms and applicable state law.
Why Do Families Create Living Trusts?
Families use living trusts for different reasons. The benefits depend on the assets involved, how the trust is funded, applicable state law, and the family's objectives.
Transfer Property
Property properly held in the trust can generally be administered and transferred according to the trust rather than relying solely on a will and the ordinary probate process.
Continuity of Management
A successor trustee can be designated to manage trust property when the circumstances specified by the trust and applicable law permit that transition.
Control the Distribution
A trust can provide instructions for who receives trust property, when distributions occur, and how property should be administered for beneficiaries.
Living Trusts and Probate
Probate is a court-supervised process used to administer certain property after death. The procedures, costs, timelines, and thresholds vary significantly by state.
Property properly held in a living trust can generally be administered under the trust rather than through the ordinary probate process applicable to individually owned probate assets.
Ownership matters. Assets left outside the trust may pass according to a will, beneficiary designation, joint ownership, state transfer procedure, or another method depending on the asset and applicable law.
Living Trust vs. Will
A will and a living trust can both be important parts of an estate plan, but they perform different functions.
A Will
A will generally provides instructions concerning property subject to the will after death. It may also nominate guardians for minor children and address other matters permitted by applicable state law.
A Living Trust
A living trust can hold property during life, provide for management if circumstances change, and direct the administration and distribution of trust property after death.
A coordinated estate plan may use both, along with powers of attorney, healthcare directives, deeds, beneficiary designations, and other planning documents.
Creating the Trust Is Only Half the Job
Signing a trust agreement does not automatically connect every asset you own to the trust.
The process of coordinating appropriate assets with the trust is commonly called trust funding.
Real Estate
When real property is intended to be held in the trust, an appropriate deed or other title action may be required. Deed, recording, transfer, tax, and execution requirements vary by jurisdiction.
Financial Accounts
Certain non-retirement financial accounts may be retitled or otherwise coordinated with the trust depending on the account, institution, and estate plan.
Beneficiary-Driven Assets
Retirement accounts, life insurance, and certain other assets often require separate beneficiary planning rather than simply changing ownership to the trust.
The trust document, deeds, account ownership, beneficiary designations, and other planning tools need to work together.
Your Real Estate Deserves Special Attention
For many families, real estate represents one of the largest components of family wealth.
If a property is intended to be held in the living trust, title should be reviewed and coordinated with the estate plan.
The Deed Matters
Real estate ownership is determined through title and applicable property law. The appropriate deed and vesting can vary depending on the state where the property is located.
Existing Mortgages Matter Too
Placing real property into a trust does not eliminate an existing mortgage. Title, mortgage, insurance, and estate-planning issues should be considered together.
Property ownership should support the estate plan rather than exist separately from it.
Living Trust Planning Across State Lines
TrustMaker serves families across multiple states, but estate planning is not governed by one national set of rules.
Trust law, probate procedures, deed requirements, powers of attorney, healthcare directives, execution requirements, and other legal issues can vary by jurisdiction.
Real estate located in another state can create additional considerations because property law is generally tied to the jurisdiction where the real estate is located.
The planning process should account for where you live, where your property is located, and which jurisdiction's requirements apply. State-specific professional assistance can be incorporated when appropriate.
A Living Trust Is Also About Your Lifetime
Estate planning is not only about what happens after death. It should also consider what happens if illness, injury, cognitive decline, or another circumstance prevents you from managing your affairs personally.
A living trust can establish a mechanism for a successor trustee to manage property held in the trust when the conditions specified in the trust and applicable law are satisfied.
Powers of attorney and advance healthcare directives can address additional financial and healthcare decisions outside the trustee's role.
A Trust Can Do More Than Say Who Gets What
Some families want property distributed immediately. Others want additional structure.
Depending on the trust and applicable law, planning can address how property is managed or distributed for beneficiaries such as:
- Minor children.
- Young adult beneficiaries.
- Children or grandchildren with special circumstances.
- Blended families.
- Beneficiaries who may need financial management assistance.
- Charitable beneficiaries.
It also asks when, how, under what circumstances, and for what purpose family wealth should be transferred.
What a Revocable Living Trust Does Not Automatically Do
Living trusts are useful planning tools, but they should not be presented as accomplishing things they were not designed to do.
- A standard revocable trust does not automatically provide comprehensive creditor or asset protection.
- It does not automatically eliminate estate or other taxes.
- It does not automatically control assets that were never properly coordinated with the trust.
- It does not replace every other estate planning document.
- It does not eliminate the need to periodically review beneficiaries and property ownership.
The broader plan may involve legal, tax, financial, insurance, real estate, and family considerations depending on your circumstances.
Your Trust Should Change When Your Life Changes
An estate plan created years ago may no longer reflect your family, property, or intentions today.
Consider reviewing your trust after significant events such as:
- Marriage or divorce.
- Birth or adoption of children or grandchildren.
- Death of a trustee or beneficiary.
- Buying or selling significant real estate.
- Moving to another state.
- Retirement.
- Starting, buying, or selling a business.
- Receiving a significant inheritance.
- Major changes in family wealth.
- Changes in beneficiaries or legacy objectives.
The TrustMaker Approach
TrustMaker begins with the family rather than the document.
The process helps organize your family information, property, beneficiaries, decision-makers, and planning objectives so the appropriate documents and funding steps can be coordinated.
Because TrustMaker serves families across multiple states, jurisdiction-specific requirements are considered as part of the planning process. When a matter requires individualized legal advice, complex drafting, tax planning, unusual title work, or other specialized assistance, appropriate professional resources can be incorporated.
The goal is to have a working plan in which your documents, property, title, beneficiaries, and intentions all point in the same direction.
Common Living Trust Questions
Does a living trust avoid probate?
Property properly held in a living trust can generally be administered according to the trust rather than through the ordinary probate process. The result depends on ownership, the type of asset, applicable state law, and other circumstances.
Do I lose control of my property?
With a typical revocable living trust, you generally continue to control and benefit from the trust property during your lifetime while you have the legal authority to do so.
Do I still need a will?
A will can continue to serve important functions even when a living trust is part of the estate plan. The appropriate combination of documents depends on your circumstances and applicable state law.
Does signing a trust automatically put my home into it?
Generally, no. Real estate ownership is determined by title. If the plan calls for the trust to hold the property, appropriate deed or title action may be necessary.
Can I change my living trust?
A revocable living trust is generally designed to allow amendment or revocation during the trustmaker's lifetime, subject to the trust terms, legal capacity, and applicable law.
Does a living trust protect assets from creditors?
A standard revocable living trust should not be assumed to provide creditor protection. Asset-protection planning is a separate area that may require specialized legal advice.
Can one trust hold property in multiple states?
A trust may be involved with property located in more than one state, but real estate title, deed, recording, probate, tax, and other requirements can vary by jurisdiction.
What happens if I move to another state?
Moving is an excellent reason to review an existing estate plan. State laws differ, so the trust and related documents should be reviewed to determine whether changes are appropriate.
Do I need an attorney?
The appropriate level of legal assistance depends on the jurisdiction, documents, family circumstances, property, and complexity of the plan. When individualized legal advice, complex drafting, or state-specific legal work is needed, qualified legal counsel should be involved.
Related Resources
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