As opposed to a general Will, which only comes into effect after you pass away, a living Trust is a legal document that allows you to control how your assets are handled before and after you die. It is a special kind of fund that can technically own your assets while you are still alive, but it also lays out how to distribute those assets after you pass away. Many people in Wichita Falls and throughout Texas and Oklahoma enjoy the benefits of having a Trust and it is something more people should be aware of. A Trust can offer you and your assets substantial protection and it can effectively preserve your estate for your loved ones.
What Assets Can be Placed Into a Living Trust?
The types of assets that you can put into a Trust vary.
- Real estate
- Bank accounts
- Mutual funds
- Mining rights, oil rights, intellectual property, etc.
- Family heirlooms
- Collections (coins, records, cards, etc.)
- Jewelry and other personal belongings
There are other types of assets that can’t be owned by a Trust. However, you can still name the Trust itself as the beneficiary. For example, you can put the Trust as a beneficiary for a retirement account, such as a 401(k), IRA, or for your life insurance policy. So, when you die, your benefits will automatically be paid into the Trust.
How Does a Trust Work?
When you create a living Trust, you transfer the ownership of your assets to the Trust itself. For example, if you have a piece of real estate, you would replace your name with the name of the Trust and then the Trust would own the property instead of you. You could also do this with your banking accounts, the titles to your vehicles, and whatever else you want in the Trust. The process of transferring these assets into the Trust’s name is called funding the Trust. When you complete this, all of these assets together creates a Trust fund.
Next, a living Trust allows you, the Trustor, to name a Trustee or Trustees. The Trustee’s responsibility is to manage the assets in the Trust on behalf of the Trustor and the beneficiaries, the heirs of the Trustor who will inherit what is in the Trust. The creator of the Trust also has the ability to place certain restraints or conditions that must be met in order for the beneficiaries to receive their part of the inheritance. For example, the Trustor could require the beneficiary to complete college before he/she can receive their part of the inheritance.
The living Trust takes effect while you’re still alive, hence the name living, and it continues even after you pass. That is, unless there is a provision to terminate the Trust on a specified date.
Revocable Trusts vs. Irrevocable Trusts
The revocable Trust is definitely the most common. In fact, the revocable living Trust is commonly just referred to as “a living Trust”, with people assuming that it is revocable. But here we will go over the basics of both a revocable and irrevocable living Trust.
A living Trust can be revocable or irrevocable. A revocable living Trust can be changed at any time, making it the more flexible option. With a revocable living Trust, you can move assets in and out of the Trust anytime you want, or completely revoke the Trust whenever you desire. Many people will start out with a revocable living Trust and convert it to an irrevocable one when they are more certain that what is in the Trust is what they really want. Additionally, one important thing to know about both of these types of living Trusts is that when the creator, or Trustor, has passed away, a revocable living Trust automatically becomes irrevocable because the only person with the power to change it is no longer here.
On the other hand, an irrevocable living Trust is permanent meaning once the assets are put in the Trust, they can’t be taken out. It cannot be changed even by the creator of the Trust itself. The only way it could be changed would be by a judge, and that usually only ever happens in special circumstances.
Advantages of a Living Trust
1. Saves time and money by avoiding probate.
As opposed to a Will, a Living Trust does not have to be probated, meaning it does not have to be filed with the probate court and approved by the judge. By avoiding this process, the Trustee is able to immediately take action in taking care of the affairs of the deceased such as paying for funeral costs/expenses and distributing property to the beneficiaries. Additionally, you avoid all of the costs associated with probate, therefore, saving money.
2. Protects privacy
A Will is a public document and anyone can get access to it after your death. They just simply have to go to the county records. But a Living Trust, on the other hand, is completely private. No one will be able to know the details of the Trust without the Trustee handing over that information.
3. Protects against possible challenges.
A Living Trust is harder to challenge than a simple Will. With a Living Trust, the person who is challenging it has to prove that the creator of the Trust was coerced into signing it and also forced to go through the entire process of transferring the assets to it and funding it.
Nowadays there are plenty of online services where you can easily go online and get a Will done. But with a Trust, it is recommended that you set that up with an attorney and an attorney will have fees. Trusts are more expensive than simple Wills. But keep in mind, while you are spending money upfront, your Trustee and your beneficiaries will be saving money on the back end by avoiding probate.
Since a Living Trust is created and funded before you die, you technically don’t own anything that is in it anymore. Instead, the Trust owns it. Therefore, if you decide you want to sell a piece of real estate or a vehicle that is owned by the Trust, you have to take it out of the Trust before you can sell it.
3. Transferring of everything you own.
Once the Trust is created, you are going to have to go back through everything that you want in it and re-title or re-deed those assets so that the Trust is named as the owner. If you fail to do this, the Trust won’t work to its full extent. You’ve paid for and set up the protection, yet you’ve failed to put anything under the protection that you bought.
Living Trust vs. Will
There are a number of situations where having a living Trust could benefit you more than if you only have a Will. It all depends on your situation. For example, having a living Trust can help you avoid conservatorship, a form of legal guardianship of an adult, if you become incapacitated and can’t manage your finances. Instead of the state appointing someone to oversee your estate, your Trustee, someone you choose and can Trust, can continue to take care of things and manage your estate on your behalf.
A living Trust has another huge benefit that people don’t ever really consider. It allows your beneficiaries to avoid probate after your death. Probate is the legal process by which your estate is handled through the probate court. Your heirs must issue your Will to the court and the court must validate your Will. Once your Will is validated, an executor is appointed, and that executor is responsible for paying any debts owed by your estate and then distributing the remaining assets accordingly. Probate can be a very unnecessary, expensive, lengthy, and emotionally draining process, especially during a time when your loved ones are needing to grieve properly. When you transfer your assets to a living Trust, it makes them exempt from probate.
A living Trust can also come in handy if you want to leave assets to a minor child. Generally, if you leave assets to a minor child in your will, the court will appoint an adult to manage that inheritance for them until they become of age. However, when you leave assets to a minor in a living Trust, you can leave specific instructions with the Trustee as to how and when they should receive the inheritance. For example, you can have a provision saying they have to graduate college before they can access their Trust fund.
- Unlike a Will, a Living Trust is not a public document.
- Unlike a Will, a Living Trust does not have to go through the probate court, saving time and costs.
- A Living Trust cannot appoint a guardian for minor children.
- A Living Trust is more expensive and takes more time to set up.
There’s no simple equation to determine who does or doesn’t need a living Trust. In general, you should add up your assets and consider whether you have dependents and weigh that against the cost of setting up and maintaining a Trust. If you don’t own much property or you’re single, a Will by itself may be sufficient. On the other hand, if you’re looking for some added protection for your assets, setting up a Trust may give you the peace of mind you need.
Contact a Wichita Falls Trust Attorney
If any of this information resonated with you and you would like to plan for your family's future, contact a Wichita Falls Trust Attorney today at 940-569-4000 or fill out our contact form to set up a free consultation.