How to Set Up a Living Trust

A living trust is a tool that helps ensure that your heirs receive the assets that you want them to have. While they work similarly to a will, the big difference between a will and a living trust is found in the fact a will won’t go into effect until you have passed away, while a living trust (preferably a living revocable trust) goes into effect immediately. During your life, you are still in charge of your trust and the assets contained in it, and once you have passed away, the trustee whom you have designated becomes responsible for handling the assets in the trust according to your wishes.

What Is a Living Trust?

A living trust is a document that contains information about at least one asset that you own, a beneficiary who you want to leave that asset to, and a trustee who will handle the transfer of that asset in the event of your incapacitation or death. There are two different types of trusts, revocable trusts and irrevocable trusts. Revocable trusts can be modified or even canceled by you (the granter) while an irrevocable trust cannot be canceled out or modified without the consent of the beneficiary. Most grantors choose revocable trusts so they maintain control over their assets until the asset is ready to be transferred to the beneficiary.

Who Needs a Living Trust?

There are some cases where an individual may not need a living trust. That is not because they aren’t a useful tool for estate planning. Instead, it is because there are certain assets that cannot be included in a living trust and others that simply don’t belong in one. Items that cannot or should not be included in a living trust include:

• Qualified retirement accounts (including 401ks, IRAs, 403(b)s, and qualified annuities
• Medical savings accounts (also referred to as MSAs)
• Health savings accounts (also referred to as HSAs)
• Uniform gifts to minors (also referred to as UGMAs)
• Uniform transfers to minors (also referred to as UTMAs)
• Motor vehicles

If the only assets in your estate fall under those categories, there is obviously no need for you to have a living trust. However, if your assets include real estate, cash accounts (such as money markets and CDs), stocks and bonds that you hold certificates for, business interests, some life insurance benefits and more, a living trust can prove to be very useful.

How to Set Up a Living Trust

In order to set up a living trust, you will need to take the following steps:

• Decide Between a Shared and Individual Trust: If you are married or in a domestic partnership, you will need a shared trust as your assets are jointly owned. If you are single, an individual living trust will suffice.
• Inventory Your Assets: Perhaps the most important part of the process, you will need to inventory all of your assets that are eligible to be put into a living trust. An estate planning attorney can help with this part of the process.
• Choose Your Beneficiary or Beneficiaries: The point of a living trust is to leave your assets to a person, people, or charity that will benefit from them. Make decisions about who will be named as the beneficiary on certain assets.
• Choose a Trustee: The trustee is responsible for dispersing your assets, so it is vital that you choose someone you trust explicitly.
• Consider Children: If you plan on leaving any assets (especially real estate) to children, be sure to name an adult to manage the property for them until they become of age.
• Prepare the Document: You can do this on your own through living trust software or through the assistance of an estate planning attorney. If you do your own, you will need to have your signature notarized.
• Transfer Property Titles to Yourself as a Trustee: This step is crucial. To make your trust effective, you must transfer titles of property to yourself as a trustee. For instance, you will need to incorporate the phrase “John Doe, trustee of John Doe Living Trust, dated XX-XX-XXXX.”
• File Your Living Trust Safely: Preferably in a safety deposit box at a bank, make sure your living trust is somewhere secure.

Setting up a living trust ensures that your loved ones, favorite charity, or any other entity that is dear to you can benefit from your hard work. The process behind creating a living trust can be as simple or as in-depth as you want it to be. Depending on the amount of assets that you own and your plans for them, you have the potential to create generational wealth within your own family. Of course, if you don’t feel comfortable setting up a living trust on your own, working with an estate planning attorney or another industry professional is a great option.