Christy Bieber has a JD from UCLA School of Law and began her career as a college instructor and textbook author. She has been writing full time for over a decade with a focus on making financial and legal topics understandable and fun. Her work has.
Christy Bieber, J.D. ContributorChristy Bieber has a JD from UCLA School of Law and began her career as a college instructor and textbook author. She has been writing full time for over a decade with a focus on making financial and legal topics understandable and fun. Her work has.
Written By Christy Bieber, J.D. ContributorChristy Bieber has a JD from UCLA School of Law and began her career as a college instructor and textbook author. She has been writing full time for over a decade with a focus on making financial and legal topics understandable and fun. Her work has.
Christy Bieber, J.D. ContributorChristy Bieber has a JD from UCLA School of Law and began her career as a college instructor and textbook author. She has been writing full time for over a decade with a focus on making financial and legal topics understandable and fun. Her work has.
ContributorAdam has resided at the intersection of legal and journalism for two decades. An award-winning journalist and legal strategist, he’s covered high-profile trials in Florida. After law school, Adam and spent two years clerking for a U.S. District Co.
Adam has resided at the intersection of legal and journalism for two decades. An award-winning journalist and legal strategist, he’s covered high-profile trials in Florida. After law school, Adam and spent two years clerking for a U.S. District Co.
Adam has resided at the intersection of legal and journalism for two decades. An award-winning journalist and legal strategist, he’s covered high-profile trials in Florida. After law school, Adam and spent two years clerking for a U.S. District Co.
Adam has resided at the intersection of legal and journalism for two decades. An award-winning journalist and legal strategist, he’s covered high-profile trials in Florida. After law school, Adam and spent two years clerking for a U.S. District Co.
Updated: Jan 25, 2024, 3:02pm
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
Getty
A living trust is a legal arrangement that is commonly used in estate planning. You create it to go into effect while you are still alive and use it to facilitate the transfer of assets after your death.
It’s important to understand how to set up a living trust and to determine if you need to make this kind of arrangement to provide for the people you love and protect your wealth.
A living trust, or inter vivos trust, is a legal arrangement that is created while you are alive. You’ll transfer ownership of assets to the trust, which becomes the new legal owner of your property. A trustee will manage the assets that you have transferred and a beneficiary that you name will benefit from them.
FEATURED PARTNER OFFERCreate your estate plan
Trust & Will offers customized, state-specific estate plans with clear and affordable pricing
Starting at $199
Payment plan available
Starting at $499
Payment plan available
On Trustandwill.com's WebsiteTrust & Will offers customized, state-specific estate plans with clear and affordable pricing
Starting at $199
Payment plan available
Starting at $499
Payment plan available
Living trusts are created by individuals who are typically called grantors, settlors, or trustors. The grantor who creates it will designate who the beneficiaries should be and who should act as the trustee, as well as decide what assets to transfer into the ownership of the trust. The assets held within the trust can be transferred outside of the probate process upon the death of the trustor.
Revocable living trusts, or RLTs, can be changed or modified during the course of the grantor’s life. Since the grantor largely retains control over the assets, an RLT provides very limited asset protection compared to irrevocable trusts. Assets within it also can be subject to estate tax, even though they transfer outside of probate.
RLTs are very different from irrevocable trusts, which are much more difficult to modify and which provide more protection for assets as well as the ability to avoid estate tax in certain circumstances.
If you want to set up this type of arrangement, here are the steps that you will need to take.
The purpose of this type of legal arrangement is to transfer ownership of assets so the first key step is to identify what money and property should be included.
It’s important to understand that if you transfer ownership of a home with a mortgage, this could sometimes trigger a due-on-sale clause and necessitate paying the entire loan. However, this may not be the case when an inter vivos trust is used and the grantor remains in the home and serves as the trustee.
Generally, any property that you’d hope to transfer outside of probate should be included unless there’s a specific reason not to, such as the possibility of a lender requiring full payment.
In most cases, the grantor will be the primary trustee for an RLT unless the grantor becomes incapacitated or passes away.
If you are the grantor and name yourself the trustee, you will continue to maintain control over all assets even after ownership is transferred. This is one reason why RLTs are so popular—they provide a solution to avoid probate without giving up too much control over money and property.
It will be important to name a successor trustee. This is someone who will take over managing assets in the event that the grantor no longer can due to death or incapacity. Think carefully about who this will be as this individual is someone who will be managing your money and property if you become unable to do so on your own. The trustee will also facilitate the transfer of your wealth after your death to your chosen beneficiaries.
Trustees can spend or invest money held within the trust, but must always do so with the appropriate objectives in mind. Specifically, the trustee has a fiduciary duty to appropriately manage assets on behalf of the beneficiaries. This is the highest duty under the law.
A fiduciary must act in the best interests of the beneficiaries in managing assets. They cannot put their own interest first in any circumstance. Still, it’s important to make sure you are confident the individual you select as your trustee will act appropriately and has the necessary knowledge to manage your property wisely.
Beneficiaries are the people who will benefit from the arrangement you are creating. Often, you will be the sole beneficiary during your lifetime when you create an RLT. However, you can name co-beneficiaries who will also get some money or property during their lifetime. For example, your spouse or child could be a co-beneficiary.
You will also need to name residuary beneficiaries. These are the individuals who will inherit and benefit from the trust assets after you have passed on. Trustees manage the assets on behalf of the beneficiaries and facilitate the distribution of assets to them in accordance with the instructions that are set forth when the arrangement is created.
Trust creators often name close family members as beneficiaries, but it’s also possible to name a charity or other organization to benefit from the assets held in trust.
After identifying the key details about property to transfer, and choosing a trustee and a beneficiary, it’s time to actually create the appropriate legal documents to create a trust arrangement.
The specifics of the documents can vary depending on the type of trust and your location. It’s easy to find templates online to create this kind of arrangement but it’s not always a good idea to use them. The process can be complex and require that important, well-informed decisions be made regarding your assets. Undoing mistakes can sometimes be impossible—especially if they aren’t discovered until after your death when it comes time to transfer assets to beneficiaries.
Getting legal help can be important to ensure that all of the paperwork is done properly, that the right type of trust is selected and that the right assets are transferred—especially when there are complexities such as property with mortgages on it or assets owned in different states.
