A living trust is a trust that you create while you a still living, rather than one created at your death. A living trust allows a person, called a trustee, to hold title or ownership to your property and assets. You can be trustee of your own living trust or assign another individual the role of trustee. A living trust is a lot like a will in that it gives instructions and details of how to handle your estate at your death. The difference between the two is that a living trust does not go through probate, consequently preventing the court system from controlling your assets while a Will does have to go through probate and your assets will be controlled by the courts at your incapacity.
There are 4 parties involved in a living trust:
- Grantor: Also known as the creator, trustor, settler, is the individual that establishes the Trust.
- Trustee: This is the person named by the trust as the controller of the assets. In most cases the trustee is usually the same individual as the grantor while the grantor is still alive. A trustee can also be another individual or institution to manage your trust. There can also be more than one trustee at a time known as co-trustees.
- Successor Trustee: This is the person you give the right to control the trust should the trustee die or become incapacitated. The successor trustee only has the right to distribute the trust according to the grantor’s instructions as stated in the trust agreement but does not have the right to modify the trust because the trust becomes unchangeable upon the death of the grantor.
- Beneficiary: This is who you name to receive the benefit of the trust. Anyone can be named as a beneficiary including charitable organizations and other institutions.
There are two steps to creating a living trust. The first step involves the preparation by an attorney of a legal document called a “trust agreement” this is the document that sets the terms and conditions of the trust including the naming of the trustees and beneficiaries, and also when and how the trust should be distributed. The second step involves the grantor transferring the assets (home, investments, etc.) to the trustee who then holds the assets for the benefit of the named beneficiary. Although the assets are now owned by the trust at this point, you still retain the right to use and enjoy your property. Also important to note is that a grantor can make changes to the trust at any point during their lifetime.