A "Living Trust" is a trust that you set up during your lifetime. The most common purpose is to avoid probate of your assets when you die.
When you set up a Living Trust, you must transfer ownership of most of your assets from yourself to your Living Trust. For example, title to your home and your investments are transferred from yourself to "the John Doe Living Trust.” The person who controls the assets of the trust is called the "trustee," and the person or people who receive the benefits of the trust property are called the "beneficiaries." Initially, you can be both the trustee and the beneficiary of your Living Trust, so you retain full control over the trust property. This is similar to transferring your assets to a corporation, where you are the president, and the only shareholder. When you die, the Living Trust continues to own the assets, so they do not have to go through probate. Instead, the trust directs how the assets will be administered after your death, much like a Will.
The advantages of a Living Trust include:
● Avoiding Probate: If all of your major assets are put into your Living Trust before your death, your estate does not have to go through probate. Without probate, your affairs can be settled more quickly, and with less cost. Living Trusts are especially helpful if you own property in other states, because probate might otherwise be required in each state.
● Privacy: Probate documents are public records, so your Will, a list of your heirs, and in some cases an inventory of your assets are available for anyone to read and copy. Your affairs can be settled more privately if you have a Living Trust.
The disadvantages of a Living Trust include:
● Administration: As mentioned above, in order to avoid probate, most of your assets must be transferred into your Living Trust. This involves a deed of your real estate, and changing the name on your bank accounts and investments from your name to “John Doe, as Trustee of the John Doe Living Trust.” If you own a lot of different stocks, and you (rather than your account representative) have possession of the stock certificates, each stock must be individually transferred to your Living Trust. However, if you do not buy and sell stocks and bonds frequently, or if they are held by an account representative in a custodial account, then the administration of a Living Trust is relatively simple.
● Initial Cost: Unlike a Will, which does not take effect until your death, a Living Trust takes effect as soon as you set it up. Consequently, there is more work involved for your attorney, so the fees are more than if you just have a Will.