How to Create a Living Trust

Introduction

How can you safeguard the wealth that you've earned and pass it on
to your heirs? One way is to establish a living trust. This financial
arrangement gives someone you choose legal title to your property
during your lifetime. This means he or she--not someone the state
chooses--will take care of your property should you become incapacitated.
Living trusts cost more to create, administer and manage than
wills, but they also avoid probate costs, reduce estate taxes, and set
up long-term property management. Plus they offer more privacy than
wills, keeping your finances out of the courts.

Instructions

Difficulty: Moderate

Steps

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Step One

Learn the difference between regular trusts and living trusts. A trust is a legal arrangement where you give control of your property to a trust and name a trustee and beneficiaries. A living trust differs from a regular trust in that it is created while you're alive, and it allows you to control the distribution of your estate and to transfer ownership of your property and assets into the trust. It also allows your beneficiaries to avoid probate. Many times, living trusts are irrevocable--once you give the money or asset away, you can't get it back.

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Step Two

Determine if a living trust is right for you. Consider one if your total estate is valued at $100,000 or more; if you will be subject to estate taxes; or if you have a complicated family situation, such as children from a previous marriage whom you wish to ensure receive their share of your estate. An estate attorney will help you figure out if a living trust is what you need. Key questions to ask include: Am I up to the comprehensive recordkeeping duties that come with managing the trust? Do I want to give someone control over my estate if I become incapacitated? Is a will a better option for me?

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Step Three

Talk to an experienced estate-planning attorney or a financial adviser. You'll need a lawyer anyway, as most states require that attorneys draft living-trust documents. Ask your local bar association (abanet.org) for a list of reputable lawyers or contact LegalMatch.net. When you interview candidates, look for someone with whom you'll feel comfortable working and whose rates are reasonable. Always have the attorney write out any agreements for services and fees.

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Step Four

Protect your family's privacy by avoiding probate. Probate is a legal process where a deceased person's will is filed with the local court, and only after all debts are paid off are any remaining assets and property distributed. Probate costs can range from 2 to 4 percent of the total value of your estate. If your estate comes before a judge in court, your will becomes public, and anyone can inspect it. Keep your affairs private with a living trust, and help your loved ones avoid this costly, time-consuming process.

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Step Five

Fund your living trust sufficiently. You can use numerous sources, including bank accounts, bonds, stocks, real estate, personal property and life insurance. You simply need to ensure that the title on these assets is retitled with the name of your trust. Also ensure that you transfer any property you own from your name to the trust's name. An estate-planning specialist, ideally a lawyer or a financial adviser, will be able to walk you through it.