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What Is a Living Trust?

Updated: Jun 26, 2023

A living trust is a legal document which places ownership and control of property into a trust, managed by a trustee for your benefit. A grantor can make a living trust by executing a trust document which establishes the trust. Living trusts are often used as part of estate planning and can be helpful in case of incapacity.

Once the trust is established, the grantor transfers ownership of specific property to the trust and appoints a trustee to manage the trust property. The grantor can choose to be the trustee, thereby retaining control of trust property. Alternatively, the grantor can name another person or institution as the grantor, with their permission. The grantor can also name a “successor trustee” who will take charge of managing the trust property if and when the primary trustee becomes incapacitated or passes away.

The grantor also names beneficiaries of the trust, who are the individuals (or other entities) who benefit from the trust. The grantor names beneficiaries who will inherit the property held within the trust after the grantor’s death. The assets that are held within the trust transfers to these beneficiaries without going through probate.

Creating a living trust involves drafting a formal legal document that:

  • Establishes the trust

  • Names the trustee (and successor trustee)

  • Identifies the beneficiaries

  • Specifies when and how trust property will be transferred to beneficiaries

The legal document is typically called a Declaration of Trust or trust instrument.

You need to learn your state’s requirements for the creation of a valid Declaration of Trust. Generally, these requirements involve drafting the document in writing and signing it in front of a notary public. It is a good idea to work with an estate planning attorney to help ensure your trust is legally enforceable and provides the desired protections.

After you create the trust document, you also must transfer the title of property to it. For example, if you want your house to be held in the trust, you need to sign a new deed so the trust is named as the new legal owner of the home. If you do not transfer ownership of an asset into the trust, it is not owned or controlled by the trust.

Your trust becomes active as soon as you create it. But, because it is a living trust, you have the right to cancel it or make changes to it any time you want to over the course of your life. You should let the successor trustee know where the trust document is so they can access it in case they need it.

Benefits of Making a Living Trust

There are some significant benefits of creating a living trust. Here are some of the advantages of having this type of document in place:

Assets Held in Trust Transfer Outside the Probate Process

The successor trustee arranges the transfer of assets through the trust administrator process. This is faster than the probate process, which can take months or even years to facilitate the transfer of assets to those who inherit them.

The probate process is also public record, while assets held in a trust transfer privately. And the trust administration process is less expensive than the probate process, preserving more of the estate’s assets.

The Successor Trustee Manages Assets in Case of Incapacity

You can specify that your successor trustee takes over the management of trust assets in the event of your incapacity. This can spare your loved ones from being forced to go to court and get a guardian or conservator appointed if you do not have a trust or a power of attorney in place.

You Retain Control Over Assets During Your Lifetime

Unlike an irrevocable trust, which generally cannot be changed and which requires you to give up more control over your assets, you retain control over the property you transfer into your living trust. Not only can you be the trustee during your lifetime, but you can also modify the terms of the living trust or cancel it any time you’d like.

You Reduce the Risk of the Wishes Being Challenged

A will can be contested if you pass away, which could be very expensive and could potentially result in your chosen beneficiaries not receiving the assets you wanted them to have.

While a trust can be contested, it can be harder to prove there was a problem with it that renders it invalid—especially if the trust was in effect for a long period of time before you passed away.

Disadvantages of a Living Trust

There are also some disadvantages of a living trust as well. Here are some of the big downsides.

A Living Trust Does Not Provide Solid Asset Protection

When you make a living trust, creditors can still come after trust assets because you have retained control over the property. If you must go into a nursing home, the assets held in your living trust are counted when determining if you are eligible for Medicaid to pay for your nursing home.

A Living Trust Doesn’t void Estate Tax

Although the assets held in a living trust do not pass through the probate process, they are still considered part of your taxable estate. This is a concern for wealthy individuals whose estates are large enough that estate tax could be triggered on the federal or state level.

Getting Help with a Living Trust

A living trust is a powerful legal tool, but it is not the only estate planning document that you may need. Work with an experienced estate planning lawyer to get help making a living trust, to get assistance creating a comprehensive plan to protect you in case of incapacity and to provide for your loved ones after you’re gone.

Frequently Asked Questions (FAQs)

What is the primary purpose of a living trust?

The primary purpose of a living trust is to facilitate the transfer of assets outside of probate. The probate process is public and can be time consuming and expensive. Assets in a living trust transfer outside of probate so beneficiaries inherit more quickly, the estate incurs fewer costs and the details of the transferred assets remain private.

What is the downside to a living trust?

A living trust does not provide asset protection. Creditors can still make claims against trust property, and trust assets are considered in determining eligibility for Medicaid nursing home coverage. The assets in a living trust are also counted when determining if estate taxes will be assessed on the estate.

Do I still need a will if I have a living trust?

It is a good idea to still create a will, or other estate planning documents, even if you have a living trust. A living trust only facilitates the transfer of assets held within the trust. You should create a will to transfer other property or address other issues such as identifying who will serve as a legal guardian of minor children.


Estate Planning & Probate Resources:

Dallas County Probate Courts:

https://www.dallascounty.org/government/courts/probate/


Tarrant County Probate Courts:

https://www.tarrantcounty.com/en/probate-courts.html


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