A living trust is a legal document that places your assets under the control of a trustee for your benefit during your lifetime—and transfers them to your beneficiaries after your death. It's one of the most commonly used estate planning tools because it offers several key advantages:
- Avoid probate: Assets in a properly funded trust bypass the court process
- Faster distribution: Beneficiaries can receive assets without lengthy delays
- Privacy: Unlike wills, trusts don't become public record
- Tax planning: Certain trusts can help minimize estate taxes
How living trusts work
Through a living trust, the person writing the trust (grantor) retains control over the trust’s property until their death. At that point, their chosen successor trustee takes over and distributes the assets to beneficiaries according to the trust's instructions—without going through probate.
Because properly funded living trusts bypass probate, beneficiaries often receive their inheritance faster and with fewer costs than they would through a will. This also keeps your financial affairs private, since probate records are public.
Creating a living trust doesn't have to be complicated. You'll first need to decide between a revocable living trust (whose terms you can change at any time) or an irrevocable trust (which generally can't be modified once created). The checklist below walks you through what you'll need before you begin.
Step 1. List your assets and decide which you’ll include in the trust
Start by making a complete list of everything you own, including:
- Real estate (house, rental properties, land)
- Vehicles
- Bank and investment accounts
- Stocks and bonds
- Jewelry and valuables
- Life insurance policies
You'll want to include any assets that would normally pass through probate in order to take full advantage of the benefits of having a living trust.
Step 2. Gather the paperwork
You will need all of the titles and deeds of property, stock certificates, and bank account statements in order to “fund the trust,” that is, to transfer the property into the trust, discussed more fully below. Gather them now and have them ready so the process can go more smoothly and quickly.
Step 3. Decide whether you will be the sole grantor
You can only put property you own into the trust, so if you are married or in a domestic partnership and much of your property is owned jointly, you will likely want to draw up a shared trust. Two individual trusts would be the alternative.
Step 4. Choose beneficiaries
Those who will receive the trust property after your death are called the beneficiaries and can include family members, friends, or even charities and other organizations.
Note that naming beneficiaries for your living trust is an entirely separate process from naming them on your insurance policies or retirement accounts.
Step 5. Choose a successor trustee
The successor trustee is the person who will be in charge of paying debts and distributing your assets according to your wishes upon your death. If you become incapacitated, they'll also manage trust affairs on your behalf.
When choosing a successor trustee, keep in mind:
- This should be someone you trust implicitly.
- They must be willing and able to accept the responsibility.
- Your successor trustee can also be a named beneficiary.
Accordingly, this should be someone you trust implicitly and can also be a named beneficiary in the trust. Be sure to discuss your living trust plans with your chosen successor trustee to be sure he or she is willing and able to accept the responsibility.
Step 6. Choose someone to manage property for minor children
If a minor child will inherit through your living trust, you can name someone to manage that property for them until they reach the age of majority or whatever age you choose.
Step 7. Prepare the trust document
Now that you’ve prepared all of the above, you’re ready to move onto creating the living trust itself. Each state has legal statutes guiding how trust documents must be written. An estate planning attorney or an online legal service can help ensure your trust complies with your state's requirements.
You may also want a pour-over will—a document that "catches" any assets not transferred into the trust and directs them there after your death. A pour-over will can also name a guardian for your minor children.
Step 8. Sign and notarize
Once your document is prepared, it must be executed according to state law. Most states require notarization of the document, although sometimes only witnesses are required.
Step 9. Transfer property to yourself as trustee
A living trust only becomes valid after you "fund" it by transferring assets into the trust's name. The transfer process depends on the type of property.
- Real estate: Record a new deed transferring the property to the trust
- Bank accounts: Contact your bank to retitle the account in the trust's name
- Vehicles: Update the title with your state's DMV
- Stocks and bonds: Work with your brokerage to transfer ownership
Step 10. Store the document in a safe place
As with any important legal document, you should make sure that you have it stored in a safe place and that someone you trust, the successor trustee for example, has access to it.
Step 11. Keep your living trust up to date
Review your living trust whenever you experience major life changes, including:
- Births or deaths in the family
- Marriage or divorce
- Buying or selling significant property
- Changes in your financial situation
Even without major changes, it's wise to review your trust every three to five years to ensure it still reflects your wishes.
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