Do-It-Yourself Living Trust
Do-It-Yourself Living Trust
You’ve heard about living trusts and might be wondering if you can make your own living trust. There are definite benefits to setting up a living trust and creating a living trust on your own means you save on legal bills and can set up the trust without delay. But what do you need to know in order to create one?
What Is a Living Trust?
A living trust is a legal document that takes control of some of your assets during your lifetime. You choose a trustee who controls the trust and transfers the assets to the beneficiaries you choose. The assets in a trust pass outside of probate and outside of your will. There are two important types of living trusts. A revocable living trust is set up so that you can change your mind about the trust at any time, revoke it, or make alterations to it. An irrevocable living trust cannot be changed by you, but it has the benefit of avoiding estate tax for the assets in the trust.
Who Is Involved in a Do-It-Yourself Living Trust?
When you create a DIY living trust, there are no attorneys involved in the process. You will need to choose a trustee who will be in charge of managing the trust assets and distributing them. You can choose yourself or another person. It’s important to name an alternate or successor trustee so there is a backup. It is also possible to choose a company, such as a bank or a trust company to be your trustee. You even have the option of appointing a trust protector, a person or company who can fire your trustee if the trust is being mismanaged. You’ll also need to choose your beneficiary or beneficiaries, the person or people who will receive the assets in your trust. For many people, this is a spouse or family member.
What Goes into a Trust?
Once you decide who you want to be involved in your trust, you have to choose the assets that will go into the trust. You can select any assets you want, but most people choose real estate, investments or bank accounts. To place the assets in the trust, you need to change the legal ownership of the assets from your name to that of the trustee. So for real estate, you will need a deed transfer. For financial accounts, you transfer the ownership to the trustee as well. Be aware that if you are creating an irrevocable trust, it is very important that all assets in the trust be retitled in the name of the trustee. If you want to place items such as the furnishings in the home you live in into an irrevocable trust, your trust could be declared invalid since you never gave up true control of those assets and instead continued to use and own them.
Creating the Trust
Once you’ve made the important decisions about what will be in the trust and who will be involved in it, you’re ready to prepare the document itself, which is called a trust deed. The deed will list who is the trustee and who are the beneficiaries. The deed sets up the rules for the trust and describes how the trustee is instructed to distribute the assets and what authority he or she has over those assets. Make sure that you specify whether the trust is revocable or irrevocable because if you don’t, state law decides.
Once you have the deed prepared, you have to execute it, which means you must sign it in front of a notary public and/or witnesses (this varies by state, so make sure you understand the requirements). In most states, you do not have to file the trust, but it is a good idea to keep it somewhere secure, such as a safe deposit box or safe.
Creating a living trust on your own is an easy way to create a plan for the management and distribution of some of your assets.
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