Living Trust FAQ

What is a living trust?

A trust, like a corporation, is an entity that exists only on paper but is legally capable of owning property. A person, called a trustee, must be in charge of the property. You can be the trustee of your own living trust, keeping full control over all property legally owned by the trust.

There are many kinds of trusts. A "living trust" (also called an inter vivos trust) is simply a trust you create while you're alive, rather than one that is created at your death under the terms of your will.

All living trusts are designed to avoid probate. Some may help you reduce estate taxes (if you have assets and properties held outside of the U.S.), and others let you set up long-term property management.

Why do I need a living trust?

If you don't take steps to avoid probate, after your death your property will probably have to go through probate court before it reaches the people you want to inherit it.    Probate is the court-supervised process of paying your debts and distributing your property to the people who inherit it.

The average probate drags on for months before the inheritors get anything.  By that time, there is less for them to inherit.  In many cases, about 5% of the property has been eaten up by lawyer and court fees. The exact amount depends on your state laws and the rates of the lawyer hired by the executor.

Not everyone has to worry about probate and some people don't need a living trust, e.g. if you have very little property or your property falls under your state's probate exemption.  Most states allow a certain amount of property to pass free of probate, or through a simplified probate procedure.

If I make a living trust, do I still need a will?

Yes.  A will is an essential back-up for property that you don't transfer to your living trust.  For example, if you acquired property shortly before your death and hadn't transferred ownership of it to your trust, it wouldn't pass under the terms of the trust. Your back-up will would include a clause that names someone to get any property you did not leave to a particular person or entity.

If you don't have a will, any property that isn't transferred by your living trust or other probate avoidance device (such as joint tenancy) will go to your closest relatives in an order determined by state law. These laws may not distribute property in the way you would have chosen.

How does a living trust avoid probate?

Property you transfer into a living trust before your death doesn't go through probate. The successor trustee (the person you appoint to handle the trust after your death) simply transfers ownership to the beneficiaries you named in the trust. In many cases, the whole process takes only a few weeks, and there are no lawyer or court fees to pay. When the property has all been transferred to the beneficiaries, the living trust ceases to exist.

Is it expensive to create a living trust?

Lawyers may charge upwards of $1,000 to draw up a simple trust.  If you hire a lawyer to draw up your living trust, you might pay as much now as your heirs would have to pay for probate after your death -- which means the trust offers no net savings.

You don't have to pay a lawyer to create a living trust. With  good self-help resources, you can create a valid trust yourself.  If you run into questions that a self-help publication doesn't answer, you may need to consult a lawyer, but you probably won't need to turn the whole job over to a lawyer.

LeanLegal will be providing a detailed tutorial on estate planning, the rationale behind establishing trusts and other related matters in the near future. If you would like to be notified when this information is available please sign up for our free e-mail newsletter LeanLegal Briefs.

Isn't it a hassle to own property in a living trust?

A living trust does require some tedious paperwork.  For example, if you want to leave your house through the trust, you must sign a new deed, showing that you now own the house as trustee of your living trust.  The same would hold true for other properties and assets.  

Is a living trust document ever made public, like a will?

No.  A will becomes a matter of public record when it is submitted to probate court, as do all the other documents associated with probate including an inventory of the deceased person's assets and debts. The terms of a living trust, however, are not a matter of public record.