Understanding a Living Trust
There is a lot of confusion about trusts, and it’s no wonder. We assign the same name (Trust) to legal entities and documents that serve entirely different purposes. Some are meant for estate and legacy planning, others are designed to lower taxes, and yet others are created to run a business through or for asset protection.
A revocable living trust is the most common type of trust and is the main component of any estate plan.
These trusts, also called family trusts, serve two main functions:
To Speak for You When You Cannot
There are a lot of important decisions to be made in life. While you’re healthy and mentally competent, you can answer those questions and do something about them.
Who do I want to watch my minor children while my spouse and I go on vacation?
How do I want to allocate my business revenue? Should I put more towards marketing or employee training and recruitment?
What professionals do I want to hire to do the things that I do not have the time or knowhow to do?
These and other issues come up every day and you deal with them. No problem.
There will come a time in your life when you cannot answer life’s questions, either because you are injured or sick (we hope that doesn’t happen) or dead (which is a certainty).
A revocable living trust attempts to capture your answers to life’s important questions that will arise with your incapacity. We ask these questions now and write the answers down so when you aren’t there to answer them yourself, we’ll still have the answers:
Who do you want to take care of you are no longer able to take care of yourself?
Who do you want to take care of your kids if you are no longer able to take care of them?
Who do you want having authority to make financial decisions on your behalf?
Who do you want having authority to make medical decisions on your behalf?
Do you want your life to be prolonged via artificial means?
Do you want to be an organ donor?
How do you want your remains disposed of?
How do you want your assets distributed and to whom?
We ask those questions now, while you are in a good position to be able to answer them, and write them in a way that it will be clear and grant legal authority to carry out your wishes.
To Make the Transition of Property After Your Death Seamless
The second main purpose of a living trust is to make it possible for you to transfer the property in your estate to your heirs without them having to hire an attorney, open a court case, and petition a court to transfer your belongings after your death. The process of getting a court involved to transfer assets is called probate, and it is almost always necessary if you die without a trust (whether or not you have a will).
It is very easy to transfer your property while you’re alive. You can sign the title of your vehicle to transfer ownership. Sign a deed to give up ownership of your home. With most other things, intent and delivery of possession are enough without any paperwork. When your child goes to a birthday party and hands over a wrapped box with a toy inside, ownership is transferred.
Because transfer of property at death usually requires a court order, and transfer of property while you’re alive is simple, we create a trust so you can transfer all of your property while you’re alive. You’re going to transfer it into the trust.
You will still have all the trappings of ownership: you can still drive that car, live in that house, and login to that computer owned by the trust, but you gain a huge advantage by doing it this way (or at least your heirs do): when you die, the court doesn’t need to get involved because you didn’t own anything.
And because the trust, which owns all your property, is still “alive,” it can transfer its property to your heirs without court involvement. And it does so based on the terms of the trust that you set.