Education for Justice FACT SHEET S-4 Fall 2009
LIVING TRUSTS
WHAT IS A LIVING TRUST?
A living trust is a document
that you set up if you want to use your property until you die and then pass it
on to someone else. A living trust lets
you do this without a will. You have to transfer
ownership and control of your property to a trust
during your lifetime. You name a trustee to hold legal ownership of the property
and to manage it. The people who benefit
from the trust or will get your property are called beneficiaries. The trustee
may be a person or a financial company, such as a bank. The trustee must follow the directions you
put in the trust papers. The trustee
also has to follow the law about managing the property. Some people want a living trust as a way to
avoid probate or avoid making a will. Be
careful! Trusts are confusing and you
should think about it carefully and get legal advice.
CAN I BE THE TRUSTEE OR BENEFICIARY
OF A TRUST THAT I SET UP?
Yes. The person who sets up a trust and puts his
or her property in the trust is called a grantor. A grantor can be a trustee or a beneficiary, but not both. If you (the grantor) are also the trustee,
you have a duty to manage the trust for the benefit of the beneficiaries.
WHAT IS THE DIFFERENCE BETWEEN AN
IRREVOCABLE AND A REVOCABLE TRUST?
An
irrevocable trust cannot be
changed or ended after it is signed.
A
revocable trust can be changed or ended by the grantor at any time, as
long as the grantor is still competent.
CAN A LIVING TRUST AVOID PROBATE?
Yes. After your death, the trustee can give out the
property in the trust to the beneficiaries without going to court. This avoids the cost and delay of
probate. Also, this is a private
process, unlike probate which makes the file public for anyone to look at. See our fact sheet, Questions About Probate.
ARE THERE OTHER WAYS TO AVOID
PROBATE?
Yes. For example, if 2 people own all their
property together in joint tenancy, there is usually no probate. When one dies, the property automatically
belongs to the survivor. Also, there is
no need to probate assets that name a beneficiary. For example, life insurance money goes automatically
to the named beneficiary without probate.
You can also use a Transfer on Death Deed instead of probate to give
your house to someone when you die.
IS A LIVING TRUST USEFUL IF I BECOME
UNABLE TO MANAGE MY PROPERTY?
Yes. If the living trust is set up while you are
competent, the trustee will manage the trust property for the beneficiaries if
you become incompetent. But instead, you
can set up a custodial trust to
manage your assets if you become incompetent.
It is generally cheaper and
easier to set up a custodial trust than a living trust.
WHICH COSTS MORE, A LIVING TRUST OR
A WILL?
Generally, it costs more to
set up a living trust than to draw up a will.
The legal fees to draft the trust papers are often high. A living trust only works if you transfer property
to it. You usually need a lawyer to
handle the transfers, especially if you transfer real estate. If the trustee is a financial company, it
will charge fees to manage the trust.
IS A LIVING TRUST A GOOD IDEA IF MY
ASSETS ARE SMALL?
No. A living trust is generally not the best choice for people who
don’t have a lot of property or money. A
simple will should not cost much, particularly if you look around for a good
attorney. Probate of a small estate should
also cost less than a living trust.
ARE THERE OTHER DRAWBACKS TO A
LIVING TRUST?
A living trust only covers
the property put into it. You still need
a will for any assets you have that are not put into the trust. Also, putting assets into a trust may affect
your taxes. Creditors may be able to get
at your assets more easily.
WILL A LIVING TRUST PROTECT MY
ASSETS IF I GO INTO A NURSING HOME OR IF I NEED HOME CARE?
Putting your assets into a
trust can make it hard later on if you apply for Medical Assistance (MA) to pay
for long-term care. For example, the
state may force you to revoke (cancel) the trust, or you may not be able to get
MA long-term care services, nursing home or home care. These possible problems are another reason to
talk to an attorney about whether a trust makes sense for you.
SHOULD I BUY A LIVING TRUST PACKAGE?
Beware of anyone who
pressures you to buy a living trust package.
Do not deal with anyone who wants you to sign something right away or to
pay money before you have a chance to do more research. Some companies only want to sell their
pre-packaged plans. They don’t care how
well the plan meets your needs. If a do-it-yourself trust is not done
right, it can cause problems that cost money to fix.
WHAT SHOULD I DO BEFORE SETTING UP A
LIVING TRUST?
Talk to an attorney and an
accountant. Decide whether a living
trust is right for you. If you decide to
set up a living trust, have an attorney draw up the papers to make sure they
fit your needs. A one-size-fits-all
trust form may not help you.
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