What is a Living Trust? Your North Orange County Escrow Expert, Joan Choice, explains! As with all legal documents, please consult your attorney for legal advice.
When you own property and you’re planning on how to pass this on to your loved ones, you may need to consider how to handle the distribution of this property. Most people have heard of a Will and know roughly how they work. But, another option to managing your Estate, is setting up a Living Trust.
But what is a Living Trust? It is a cost-saving device, according to AllLaw.com: “it allows you to avoid the expense and delay of probate proceedings, which can take up to 3 years to complete and eat up 10% of the value of your estate.” Probate is the process of establishing the validity of a will and it can be expensive, lengthy, and sometimes even unpleasant.
Estate planners often recommend Living Trusts as an option when figuring out in which way to hold title to real property. As an alternative to distributing property through a Will, a Living Trust has some advantages and some disadvantages. We’ll explore those after giving a little more background information.
Parties to a Trust
Who are the parties to a trust? Typically, a Family Trust is set up in which the Husband and Wife are the Trustees and their children are the Beneficiaries. The Trustees are usually the primary beneficiaries during their lifetimes. Normally, the Trustees appoint themselves as Settlors or Trustors, the ones who establish the Trust and transfer the property into the Trust. The Trust usually terminates after the Trustees pass and the body of the Trust is distributed to their beneficiaries.
After their passing, the children and grandchildren usually become the primary beneficiaries if the Trust is to endure or “survive.” If the Trust is allowed to expire or “close out,” then the beneficiaries will receive distributions directly.
Living Trust Advantages over a Will
A Living Trust, unlike a Will, never becomes public record and there is no need to hire a lawyer when the time comes to distribute your estate. This means a Living Trust offers less confusion and hassle at a time when beneficiaries and other relatives of the deceased are usually quite stressed.
Furthermore, a Living Trust has the advantage that you can claim out-of-state properties as part of the trust. With a Will, properties out-of-state need to be probated in that state which can add extra headaches to a lengthy process.
Finally, a Living Trust can immediately transfer the management of your property if you become incapacitated physically or mentally, without the need of going to court to appoint a guardian.
Living Trust Disadvantages over a Will
On the other hand, a Living Trust requires quite a bit of initial paperwork and can be costly to set up. Also a Living Trust doesn’t give you the option of naming a guardian for minor children the way a Will does. To name a guardian for minor children, you would need to setup a will that supplements your trust.
Setting up a Living Trust requires you to transfer ownership of all the property you wish to place in the trust. This may include revising title documents. This means that you may run into some difficulty down the road if you wish to refinance property in the Living Trust.
At the end of the day, only your attorney or accountant can advise you as to which method is best suited to your unique situation. But if you need clarification on any points made here, please contact any of our knowledge Escrow Experts here at North Orange County Escrow!