Many clients come into the office saying that they need “a living trust” – often without a good understanding of what they are and when there are used. Here is a brief primer on living trusts for the uninitiated.
1) What is a living trust?
Well, breaking it down, a trust is simply an arrangement under which one person, called a trustee, holds legal title to something for another person, called a beneficiary. By the way, there is nothing to prevent the same person from both being the beneficiary and serving as the trustee. A “living” trust, by extension, is just a trust you create during your lifetime, as compared with one that is created by your will upon your death. You can use living trusts to avoid probate or plan for estate tax.
2) How do living trusts avoid probate?
For background, probate is the legal process for sorting out the affairs of an individual has died. (That statement is a major simplification, but bear with me). The process is often time consuming, expensive and exposes the deceased individual’s affairs to public scrutiny. For many reasons, avoiding probate is a desirable thing.
Living trusts avoid probate because legal title in the assets are held by the living trust and so there is no need to sort out ownership after the grantor’s death. The living trust has a provision for who will serve as trustee in the event that the grantor was serving as the trustee during his/her lifetime.
Well, that’s “living trusts” in a nutshell. There’s a lot more here to talk about, maybe we’ll explore some more basic concepts in the near future.