Top 10 Mistakes When Setting Up a Living Trust

Tr4v3tr20/ July 8, 2021/ Travel/ 0 comments

A living trust is a legal arrangement that, among other things, allows your estate to pass to your heirs after your death without going through the probate court.

A person, called the grantor, sets up a trust and transfers their assets into it, essentially by changing the title from their name to the trust’s. The grantor names a trustee to manage the assets in the trust for the benefit of the grantor’s heirs, who are called the beneficiaries. A successor beneficiary is someone who will get control of whatever is left in the trust after the beneficiary dies.

At least initially, the grantor can serve as the trustee. The grantor can name someone else as successor trustee, who will manage the trust if the grantor dies or becomes incapacitated.

A living trust avoids the need for an estate to go through probate, which saves time and probate expenses and keeps the details of your estate private. Probate, by comparison, is a public process. A living trust generally does not reduce income or estate taxes. A living trust can be revocable, which means the grantor can change or undo it.

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It costs money to set up and maintain a living trust. For some people, especially with smaller estates, the benefits of a living trust might not exceed the costs. There are other ways to avoid probate besides a living trust.

Legal will vs. living trust
If you have a will, you may wonder why you should bother with a revocable living trust. You might not know what it is, how it differs from a will, or why you should care.

A will is a document that states who will get what when you die. It goes into effect after your death. It can stipulate who you want as legal guardians for your children in the event both you and their other parent die before they reach legal age.

A will requires probate. Probate is a court procedure in which a judge must decide if the document is valid, and this can be a lengthy and costly process. In contrast, a revocable living trust goes into effect as soon as you set it up.

What does a living trust do?
But what exactly does a living trust do? Basically, it takes over the title, meaning ownership, of everything you put into it. If you put nothing into it, it is empty and therefore pointless.

You will want to sit down with your attorney and go over any assets you may want to transfer to the trust. You will have to remove your name from the title of any assets, and replace it with the name of the trust. Some assets you may want to consider are savings accounts, real estate, and stocks and bonds. But you probably won’t want to include any retirement savings like a 401(k) or IRA.

That sounds like a scary thing to do, but it’s not. As the grantor, the creator of the trust, you will make yourself the trustee; you will still be the one making all the decisions about your assets. You will also be the beneficiary—the one who benefits from the assets of the trust.

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