How to Properly Establish a Living Trust
One of the best estate planning tools you can utilize is a living trust. Establishing a trust allows your loved ones to avoid lengthy and complicated probate and may save your family money in administrative expenses and taxes. So how do you set up a living trust? The requirements of a trust to be considered legally valid include:
- You need to have the intent to create a trust. This is a fairly simple requirement to meet by stating your intent in the trust document.
- You need to have the testamentary capacity to create a trust. This means you need to have the mental capability to create and sign the trust document.
- Your trust must have a specific, legitimate purpose (e.g., for management of assets in your estate plan).
- The trust must convey some form of property. This means you cannot simply create a trust and it be barren. Future interests in property are acceptable, but they must be in existence at the time you created the trust. Speculative property, such as future earnings from a non-existent business, is not valid.
- You must name a trustee. This is the person in charge of holding the trust and transferring trust assets to a beneficiary, or beneficiaries.
- Relatedly, you must name a beneficiary. This is the person, or individuals, who will receive the trust assets.
- Sign the trust document in front of a notary public.
- Some states also require that witnesses are present to see you sign the trust document.
Generally, living trusts take one of two forms – revocable and irrevocable. You, in consultation with your estate planning attorney, can decide what form the living trust will take at the time of creating and signing the trust document.
Here is a video where Bobby discusses some of the basics of a trust:
A Trust is Only One Component of an Estate Plan
Establishing a trust is a wise estate planning strategy, but it is not the end-all-be-all of your estate plan. You also need to have a legally valid Last Will and Testament, a Durable Power of Attorney, proper beneficiary designations for your IRAs, pensions, and other savings accounts, a list designating beneficiaries for family heirlooms and items with intangible value to you and your loved ones, and so on and so forth. This is why it makes sense to speak to an estate planning attorney to ensure you have a fully developed estate plan that is updated annually.
Is a Trust Permanent After It is Created?
A revocable trust can be terminated by you (the trustor) at any time and you can repossess the property that was transferred to the trust. Terminating an irrevocable trust is more complicated but it is possible if the trust has been drafted properly and the attorney understands the nuances. Both types of trusts avoid probate and estate tax protection if assets are properly titled in or to the trust (we see this as the biggest flaw in most of the trusts we review), but only irrevocable living trusts provides asset protection for you during your lifetime (if maintained properly).
Is My Living Trust Enforceable Across the Country?
Yes. Living trusts created in Virginia, Maryland, or D.C. are enforceable in any state. Similarly, a living trust created under another state’s laws is likewise enforceable in the DMV.
Other Benefits of Establishing a Trust
Living trusts offer an array of benefits including the ability to share property ownership with multiple family members and loved ones, the aforementioned potential to minimize estate taxes and the protection of your assets from creditors. This protects your property from potential legal seizure and sale.
A trust also empowers you to specifically explain how you want the trust to distribute money and property to each beneficiary and include stipulations on those distributions. For example, if you have a minor child, you can include provisions on when they can access their inheritance and a yearly or quarterly amount they can receive as well as protect the assets from divorce and other creditors.
Speak to an Experienced Trust and Estates Lawyer
Establishing a legally valid trust can get complicated, especially if you have a large estate with properties in different states and a large family of potential beneficiaries. This is why it makes sense to sit down and speak to an experienced estate planning attorney in your area.
As Insight Law, we can help both establish your trust and represent the personal representative or trustee through the administration process when that service is needed.