A living trust form is a document that creates a legal entity (called a trust) to hold assets like real estate, money, and valuables.
The trust is designed to manage assets during your lifetime and organize how your assets will be distributed in the event of your death.
Remember that for the type of trust referred to by the names above, you transfer ownership of assets to the trust during your lifetime. This differs from a testamentary trust, created as part of a last will, and only takes effect after the grantor’s death. [1]
By Type
What is a Revocable Living Trust?
A revocable living trust gives the grantor (the person creating the trust) flexibility in what assets they want to hold in their trust. It can be changed or revoked at any point during your lifetime.
You’ll commonly hear this legal document (and the entity created to hold assets) referred to as a:
- Trust
- Inter-vivos trust
- Revocable trust
- Revocable living trust
A revocable living trust is tied to your social security number, and the financial income generated in the trust needs to be filed with your taxes.
In many states, a revocable living trust is a standard method to protect property and assets from life circumstances.
California, for example, includes any estate worth over $150,000 in complete probate unless alternate legal arrangements have been made before death. Estates worth less money in California may still be subject to a more straightforward probate process.
Usually, upon death, assets go into probate. But probate can be time-consuming and costly, and the legal beneficiary (according to the law) might not match the person’s wishes.
A living trust saves your heirs the probate process and allows you control of your funds in sickness and health. It’s the most commonly used method to secure your assets during your lifetime and to protect them if you fall ill or pass away.
The Difference Between a Revocable Living Trust and Irrevocable Trust
The main difference between a revocable vs. irrevocable trust is the degree of control and ownership the grantor has over the trust once it’s created.
A revocable living trust can be modified or terminated by the grantor at any time as long as the grantor is mentally competent at the time of the decision. The assets in the trust are considered the grantor’s property and must be filed with their income taxes.
On the other hand, an irrevocable living trust can’t be altered or revoked by the grantor without the permission of the beneficiaries.
The grantor legally forfeits the ownership of the assets, and they are moved out of their taxable estate.
Whether you choose a revocable or irrevocable trust, the assets held by the trust will be distributed to beneficiaries in the same way upon the grantor’s death.
Why Do I Need a Trust?
You need to create trust in case you …
- own property that you want to pass down
- want beneficiaries to receive property as soon as possible
- have a particular way you want assets to be distributed
- want to avoid probate fees
- prefer to keep your estate information private
Living trusts benefit from bypassing probate, which can be a lengthy process. Trust assets are considered non-probate property and pass directly to beneficiaries after death.
A trust is an essential estate planning document that can be created as an alternative to or in conjunction with a last will and testament (which does not protect your assets from probate).
For most people, we recommend creating both documents. Realistically, not everything you own can be transferred into a trust during your lifetime, so some assets will be transferred according to your state’s intestate succession laws if you don’t have a will.
Additionally, a last will provides specific functions that trusts don’t, such as naming a guardian for minor children.
Related resource: 9 End-of-Life Documents Everyone Needs
Should I set up a revocable living trust?
Here’s a list of pros and cons when deciding whether to use an RLT form.
Pros
- Probate avoidance – avoiding going to court
- Flexible – you can change it anytime.
- Separates your assets in a marriage
- Keep your estate information private
Cons
- Needs to be reviewed and updated yearly
- Property needs to be re-titled after creating the trust
- It does not fully protect your assets
- You’ll still pay taxes for the assets in the trust.
Living Trust Laws – by State
Most states have adopted some form of the Uniform Trust Code to govern the creation and interpretation of trusts.
How to Write ( Fill Out ) a Living Trust Form
Follow the steps below to complete your trust document:
Step 1: Fill out the grantor information
Fill out the name and address of the person (or people) putting property into the trust.
Step 2: Indicate the purpose of the trust
The most common reason for creating a trust is to manage and distribute your assets, but you can include any other lawful reason you choose.
Step 3: Include trustee information
Indicate who will serve as the initial trustee(s) and the successor trustee(s). Often, the grantor will choose themself as the initial trustee so they can continue to manage the trust assets during their lifetime.
Step 4: List beneficiaries and make specific gifts
Decide who will receive assets from your trust, whether as a particular gift or as a percentage of the trust. Beneficiaries can be either people or organizations (such as a charity).
Step 5: Sign and notarize the completed document
In most states, you must acknowledge the trust document before a notary public to ensure your signature is valid. Check your state’s requirements if you’re unsure.
Frequently Asked Questions
What assets should be placed in a revocable trust?
You should place the following assets in your living trust:
- Real property
- Vehicles
- Bank accounts
- Investment accounts
- Stocks and bonds
- Other personal property
By transferring the ownership of these items to your trust, they can avoid probate and transfer directly to the beneficiaries you designate.
What is the downside of a living trust?
The main downside of a living trust is the time and effort it takes to create your trust and transfer your assets into it. That being said, creating trust takes the burden of managing your estate after your death from your family and loved ones.
If you choose to create a revocable living trust to maintain control over your assets during your lifetime, remember that you forfeit the tax benefits and asset protection provided by an irrevocable trust.
Are living trusts public record?
No, living trusts aren’t public records, even after the grantor’s death. Only the successor trustee and other involved parties like accountants and sometimes beneficiaries have full access to trust documents.
In rare cases where the trust is contested in court, however, it will likely become a public record as part of the documents from the court proceeding.
How does a living trust work after death?
After the grantor’s death, the living trust becomes irrevocable (meaning it can’t be changed), and the successor trustee takes over the responsibility of managing the trust and distributing assets to beneficiaries according to the instructions in the document.