A will distributes your assets and belongings to beneficiaries when you die. While a living trust is similar to a will in that regard, the critical difference is that a living trust receives ownership of those assets and belongings while you are still alive.
When a “grantor” uses a “Declaration of Trust,” they name a trustee who will take on the responsibility for managing the property in the trust as dictated by the rules laid out by the grantor. To fund the trust, the grantor transfers ownership of their property to the trust.
Typically, a grantor will appoint themselves as the original trustee and use the trust how they wish until they die. At this point, the trust passes to the successor trustee that the grantor has selected to manage the property. The successor trustee is similar to the executor of a will.
What Should Be Put Into a Living Trust?
The more value an item holds, the more it costs the beneficiary to receive it upon your death. Probate fees, estate taxes, and inheritance taxes can add up quickly on expensive things. So when considering what to place in your living trust, evaluate your most valuable items like:
- Houses and real estate
- Valuable collections or works of art
- Stocks, bonds, and security accounts
- Precious metals or priceless items
- Patents and copyrights
- Business interests like stocks, partnerships, or LLCs
What Types of Living Trusts Are There?
There are two distinct types of living trusts: revocable and irrevocable. These two types of trust have significant differences.
- Revocable Living Trust: As the name may suggest, a grantor can cancel or revoke a revocable living trust at any time. Revocable living trusts are the most common type of living trust due to their flexibility. Not only can you cancel the living trust, but you can also change and update it by removing or putting in more assets, naming new successors, removing old successors, changing guidelines, and selling off the property owned by the trust. A revocable living trust converts to an irrevocable trust after your death. Your successor trustee must follow the instructions in the Declaration of Trust as it appeared at the time of your death, respecting any changes you made to the original document while you were living.
- Irrevocable Living Trust: Simply put, a trust that you are unable to change or cancel (revoke) is considered, aptly, irrevocable. An irrevocable living trust is created in the same way as a revocable one, and therefore the transfer of property ownership is processed the same. However, to change the terms of an irrevocable living trust requires a judge’s order or an agreement signed by the original trustee and all of the trust’s beneficiaries.
Is Property Placed in a Living Trust Subject to Probate?
When control of the property in a living trust passes from a deceased trustee to the successor trustee, it is not subject to distribution according to the deceased’s will, nor is it required to go through the probate process. Avoiding probate is possibly the most common reason that someone may want to get a living trust. The clean transference to a successor is much simpler, avoiding the potentially costly and arduous probate process.
If you are considering setting up a living trust to pass your property or assets to a successor without the headache of probate, get a consultation from our law office by calling (805) 244-5291.