A living trust is a legal instrument that ensures a person’s assets are dispersed according to their wishes at death, while a living will describes medical treatment preferences. A properly prepared and funded living trust can help avoid probate, but caution is advised when selecting a trustee or purchasing do-it-yourself trust kits.
A living trust, not to be confused with a living will, is a legal instrument intended to ensure that a person’s assets are dispersed according to their wishes at death. It may also include one’s wishes about who should act as guardian of minors. A living will, on the other hand, is a legal document that describes what types of medical treatment you want to receive or not receive, should you become incapacitated by illness or injury.
With a living trust, a person transfers ownership of their assets to the trust and then selects a trustee to manage it. The administrator can be a family member or friend, an attorney, an establishment such as a law firm, or the original owner. In the last scenario, the owner appoints someone to succeed him as the manager after his death.
A properly prepared and properly funded living trust can help your loved ones avoid probate, because technically your assets are no longer yours; they are owned by the trust. Only items that are in your name will be subject to probate. To ensure that a living trust is properly “funded”, you must ensure that all property has been transferred from your name to the trust. Otherwise, the living trust is void and the state controls the distribution of your property and also decides who raises your children.
As is the case with so many money-related problems, there are some unscrupulous people and companies that try to sell you living trusts or do-it-yourself trust kits, so proceed with caution. They hold seminars, make cold calls, and send spam emails to try to sell you their services, even though what they offer may not be of any value to you. Many states do not allow the sale of a living trust by anyone other than an attorney, so make sure the person or business is licensed and competent to provide such a service. Also, keep in mind that state laws differ and what applies in one state may not apply in another.
A living trust can be an advantageous tool when implemented properly, but it can actually cost you or your loved ones a lot of money if not executed correctly. Do your homework before hiring someone to set up a trust for you, and make sure your assets are transferred correctly. Estate planning, including setting up a living trust, is not something most people enjoy thinking about or doing. However, the peace of mind that comes from knowing that your family will be taken care of if something happens to you makes it well worth the time and energy it takes to get it right.
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