What is a living trust?
A living trust is a tool you can use to avoid probate when you are looking to pass your property onto your heirs at the time of your death. What exactly happens with a will? Well, even if you create a valid will, Surrogate’s Court will still need to examine the will and allow the transfer of all property through the probate process. A living trust avoids that entire step of court involvement. As soon as the living trust is made, all of your specified property is transferred into the trust.
The word “living” is as it sounds, you create this instrument during your lifetime. Living trusts are considered revocable which means you can alter them at any time before your death. While you are alive, you can sell the property, give it away to charity, or utilize it for your own benefit. Once you pass away, however, your beneficiaries automatically inherit the property that was placed in the living trust, with no court intervention necessary and minimum paperwork.
With most trusts, you would need to obtain a separate taxpayer identification number and establish separate trust tax documentation and records. This does not apply to a living trust. All activity and all transactions are reported on your Form 1040 (personal income tax return).
How a living trust works is as follows:
- You would need to name the property you are interested in transferring .
- You would want to identify the trustee (this would typically be you if you want to maintain control of the property)
- You would then name the successor trustee. They will distribute the property upon your death.
- At this point you would also want to name the beneficiaries. They are the ones receiving your property upon your death.
Once the above is done, what happens next is the transfer of your property into the trust. Upon your death, the successor trustee will come into the picture, obtain the property in question, and distribute it to your beneficiaries.
In case you decide to go this route, there are some terms you would want to be aware of. The individual who is setting up the living trust is called the “trustor”, “settlor”, or “grantor”. Be mindful a living trust has to be in writing. The property and belonging in which you are looking to transfer is known as the “trust principal”, “trust estate”, or “trust property”.
A common question I have received in the past was “If I establish a living trust, do I need a will”? I think it is best to hedge your bets and have a will in place as well. We don’t exactly know when we will pass away. Let’s assume you bought a new car or a new piece of jewelry days before your death. Chances are you did not put the recently purchased item into your living trust. By having a will and ensuring it contains the proper language, you avoid a situation where your living trust doesn’t cover all of the property you had intended to transfer.
In short, it is always a good idea to contact an estate planning attorney in New York to help you with creating both living trusts and wills to fortify your control over what your beneficiaries get upon your passing.