A living trust is a practical financial planning tool for anyone who wants to safeguard his assets for his children. Sometimes called a revocable living trust, or a family trust, a living trust ensures that your estate goes to your children after your death, or in the event of your incapacitation through accident or illness, says Living Trust Network. Unlike a will or joint tenancy, a living trust is the only legal document that avoids probate, the legal process that removes a deceased person's name from the title of a property or asset and assigns the new owner's name. With a living trust, the property or asset is in the name of the trust, not the deceased; therefore, probate court can be circumvented, according to the Federal Trade Commission.
Step 1
Hire a reputable, experienced, licensed estate planning attorney or financial advisor. As a rule, state law requires that an attorney draft the living trust. If you do not have a lawyer, the American Bar Association (ABA), Living Will Network, and the AARP offer resources for consumers seeking legal help with living trusts.
Step 2
Choose the properties and assets you and your spouse would like to go into the living trust. According to Living Trust Network, transferring certain types of property to your living trust can present problems. The transfer of stock, for example, may not be permitted by the company by-laws or shareholder agreement. Make sure you discuss this potential snag with your existing shareholders before you attempt the transfer. Also, if there is an existing mortgage on your home, notify the bank or mortgage company that you intend to transfer your home to your trust.
Step 3
Transfer the name on accounts or property to the name of the trust, a process known as "funding your trust," says Estate Planning. For example, accounts in the name of John and Jane Davis, would now be held as "John and Jane Davis, Trustees of the Davis Family Trust, date signed, and year". Funding a trust involves setting up the trust instrument, which guarantees that you retain as much control over your property as you did before the transfer, as well as the durable power of attorney, which unlike a regular power of attorney, does not terminate upon the incapacity of the principal.
Step 4
Appoint a successor trustee to manage the trust after your death. When choosing your successor trustee, consider the type of property and assets that are being held in the living trust. One or more may require a certain level of expertise, so name a successor trustee who has that expertise, says Living Will Network. Also, since the successor trustee has the right to manage the assets in the living trust, make sure you appoint someone who can manage your assets for the benefit of your children.
Step 5
Name your children as the trust beneficiaries. If your children are minors, the living trust can hold the assets until they mature.
Tips and Warnings
- Keep in mind that living trusts, like families, are highly personal and distinctive. A "cookie-cutter" approach may not serve the needs of you and your family's estate. The right professional will insure you create a living trust that manages your property according to your wishes.
- Misunderstandings surrounding the costs and duration of probate and fears that estates will be eaten away, have created the perfect breeding ground for scam artists in the area of living trusts. High-pressure sales tactics typically indicate a con. Your living trust needs to be properly funded. If the transfers aren't done by a professional, you risk leaving an invalid trust, and your state laws will determine not only who inherits your property, but also who serves as guardian for your minor children.
