What is a Living Trust?
The operative word is "revocable", which means you drive the train. You completely control when and if you create, change, or dissolve your trust. You are in charge. A Revocable Living Trust is a legal document that you design to include your instructions for what you want to happen to your assets when you die.
A living trust is similar to a last will and testament, except a Living Trust accomplishes much more. The reason most people create a will is to make sure that their assets are left to their designated heirs. The problem with a will, however, is that your heirs are not entitled to take possession of the property left to them until a probate judge orders it.
So, in a will, you leave property to your heirs, and your heirs will eventually take possession of it, but not until probate is complete. Probate can take anywhere from six months to two years or more. Also, except for the smallest of estates, an attorney is required. So attorneys' fees must be paid from the estate's assets, before any money is distributed to the heirs. In many cases, the personal representative also receives a share of the estate's assets, (in Florida up to 3% of the entire estate) before the heirs receive anything. With a Living Trust you avoid probate.
How Does a Living Trust Avoid Probate?
When you set up a Revocable Living Trust, you transfer assets from your individual name to the name of your Trust. In essence you move your property from one pocket to another. For example, Jane Jones transfers the ownership of her home from Jane Jones to the Jane Jones Living Trust. Even after you transfer your real property into the name of your living trust you remain in complete control. When you create your Trust you name yourself as Trustee. However, you no longer personally own the property -- the trust owns it. There is no property for the courts to disburse when you die. The trust cannot die. The only way that the trust ceases to exist is if you, the Trustee, decides to dissolve it.
Retain Control of Assets
You can do anything you could do before - including buying, selling, renting, and improving. You can change or cancel your Trust whenever you like (that's why it's called a revocable trust). The IRS considers putting assets in a Revocable Living Trust to be a "non-event" because you can take them out at any time. Nothing changes but the names on the titles. It generally makes no difference if there is an existing mortgage on a property. The mortgage doesn't change, only the deed changes.
How Does a Living Trust Work?
When you set up a Living Trust, you are the Trustmaker, Trustee and Beneficiary, all rolled into one. If you are married, you and your spouse can be Co-Trustmakers, Co-Trustees, and Co-Beneficiaries. Or, if you like, you can name an adult child as Co-Trustee. Only the Trustees can make changes to your Trust.
What Happens if I Become Incapacitated?
If you have named someone else as your Trustee or to be a Co-Trustee
with you (for example,your spouse or a family member), they will
continue to manage your financial affairs according
to your Trust's instructions for as long as necessary. If you recover,
you automatically resume control. If you are the only Trustee or your
Co-Trustee is unable to act (for example, if your
spouse is also incapacitated or has died), your hand-picked Successor
Trustee(s) will step in and act for you. That's how you keep control
within Your family.When you recover, you can take back control of your trust.
What Happens When I Die?
Your Trustee or Co-Trustee essentially has the same duties as a Personal Representative. He/she collects any income or benefits, pays your remaining debts, sees that tax returns are filed, and distributes assets according to your Trust's instructions. All of this can be done efficiently and privately - with no court interference.
Successor Trustees can be individuals (your adult children, other relatives, or trusted friends) or a Corporate Trustee, such as a bank or trust company. If you choose an individual, you should name more than one in case your first choice is unavailable or unable to act. You can name two or more to act together.
A Trust is a binding legal contract. According to Florida law, Trustees
have a legal duty to follow your Trust's instructions and act in a
prudent manner at all times for the benefit of your
Beneficiaries. If your Successor Trustee were to abuse his
duties by not following your instructions, he could be held liable.
Funding the Trust
"Funding the Trust" What in the world does that mean?
Funding the trust simply means putting assets into the name of
the trust. If you have a trust that is not funded, also called a "broke"
trust, you literally have nothing but a stack of worthless papers. The
choices as to which assets should be put into the name of the trust is
based on individual circumstances. For example, whether it is most
advantageous to put a retirement account into a living trust depends on
several factors; and consumers may be best advised to consult with their
employer's human resources department; insurance agent; or CPA.
Consumers often add their grown children as joint tenants with right of survivorship to deeded real estate to avoid probate. This could be an effective measure, but it could be a huge mistake. And, in the long run adding grown children to your real estate only postpones probate, it doesn't avoid it. Please let us explain to you how this strategy can backfire.
Document Preparer Resources