What Is A Living Trust?
When you create a living trust, you are making a choice to not use the public system put in place by the government. What is this public system?
It is a probate or a conservatorship. In previous videos we’ve produced, we warn against both of those public system services. They are incredibly costly. The average person pays $40-50,000 in probate fees. Yuck!
A living trust takes you out of the probate system and instead gives you the full flexibility of the private system.
When someone passes away without a living trust, his or her assets need to go through a process called “probate” in order to change title to his or her heirs.
If someone passes away with a proper living trust, his or her assets instead need to go through a process called “trust administration” in order to change title to his or her heirs. This is much cheaper and faster than probate. In addition, its completely private!
A living trust is nothing more than a three-party contract.
You might have heard of a two-party contract—buyer/seller or landlord/tenant. Those only have two parties. A living trust, on the other hand, has three parties.
Want to setup a living trust the right way and need help doing so? Contact us to schedule a strategy session today!
The three parties in a living trust are called trustors, trustees and beneficiaries. The trustors create the trust. They make the rules.
The trustees manage the trust, similar to how a property manager manages a rental property or a bank manages the money in its care on behalf of the bank clients.
The beneficiaries, much like the word “benefit”, are the people that get the benefit of the trust. This is who the trust is actually for at all future dates.
You can have all three of these roles be different people. They can also be the same person in all three roles.
When you initially create the family trust, you are in all three positions – trustors, trustees, and beneficiaries.
One thing you ought to remember when dealing with revocable living trusts, is that it is business as usual. Some people ask, “Do I have to file a new tax form?”
Everything stays the same. You continue to sign the way you signed before.
So, you might be thinking, “What’s the point?”
The answer is that it is simply a standby device. A standby device means that it is going to sit there and only work upon two life occurrences:
Incapacity and death.
Those are the only two times where it starts to work, like an on-off switch. It’s off for now while you’re still alive and doesn’t make a difference in your life. Then when you die, or become incapacitated, and it turns on and the benefits of your planning can start to work.
The best way to picture a living trust is to think of it as a treasure chest.
You should move almost all your property into this treasure chest. It doesn’t make a difference whether it’s jointly held with your spouse or separate property. You should put almost everything you own into this chest.
The next important thing is how you hold title to the assets. If you own a piece of property in the name of John DOE, it will create a problem. It will mean that you would have to go to probate.
But, if that property you own is in the name of John Joe Trust, you have now told the probate court that you don’t want to go through the public probate system and instead you want a trust. Want to setup a revocable living trust the right way? Contact us to schedule a strategy session today!