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Living Trust FAQ
An introduction to living trusts -- a popular
way to avoid probate.
What's Below:
What is a living trust?
Why should I make a living trust?
How does a living trust avoid probate?
Is it expensive to create a living trust?
Is it a hassle to hold property in a living
trust?
Is a living trust document ever made public,
like a will?
Does a living trust protect property from
creditors?
If I make a living trust, do I still need a
will?
Can a living trust reduce estate taxes?
What is a living trust?
A trust is an arrangement under which one
person, called a trustee, holds legal title to
property for another person, called a
beneficiary. You can be the trustee of your own
living trust, keeping full control over all
property held in trust.
A "living trust" (also called an "inter vivos"
trust) is simply a trust you create while you're
alive, rather than one that is created at your
death.
Different kinds of living trusts can help you
avoid probate, reduce estate taxes, or set up
long-term property management.
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Why should I make a living trust?
The big advantage to making a living trust is
that property left through the trust doesn't
have to go through through probate court. In a
nutshell, probate is the court-supervised
process of paying your debts and distributing
your property to the people who inherit it.
The average probate drags on for months
before the inheritors get anything. And by that
time, there's less for them to get: In many
cases, about 5% of the property has been eaten
up by lawyer and court fees.
Still, not everyone has to worry about
probate, and some people don't need a living
trust at all.
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How does a living trust avoid probate?
Property you transfer into a living trust
before your death doesn't go through probate.
The successor trustee -- the person you appoint
to handle the trust after your death -- simply
transfers ownership to the beneficiaries you
named in the trust. In many cases, the whole
process takes only a few weeks, and there are no
lawyer or court fees to pay. When all of the
property has been transferred to the
beneficiaries, the living trust ceases to exist.
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Is it expensive to create a living trust?
A basic living trust isn't much more
complicated than a will, and you probably won't
need to hire a lawyer. With a good self-help
book or software program, you can create a valid
Declaration of Trust (the document that creates
a trust) yourself. If you run into questions
that a self-help publication doesn't answer, you
may need to consult a lawyer, but you probably
won't need to turn the whole job over to an
expensive expert.
The forms included with the book Make
Your Living Trust by Denis Clifford (Nolo) can
help you create a living trust. Or, with Nolo's
Online Living Trust, you just log in, answer
questions about yourself and your property, and
print. Nolo provides legal and practical
information to help you every step of the way.
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Is it a hassle to hold property in a
living trust?
Making a living trust work for you does
require some crucial paperwork. For example, if
you want to leave your house through the trust,
you must sign a new deed, showing that you now
own the house as trustee of your living trust.
This paperwork can be tedious, but the hassles
are fewer these days because living trusts have
become so common.
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Is a living trust document ever made
public, like a will?
No. A will becomes a matter of public record
when it is submitted to a probate court, as do
all the other documents associated with probate
-- inventories of the deceased person's assets
and debts, for example. The terms of a living
trust, however, need not be made public.
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Does a living trust protect property from
creditors?
No. A creditor who wins a lawsuit against you
can go after the trust property just as if you
still owned it in your own name.
Generally, after your death, all property you
owned -- including assets held in a living trust
-- is subject to your lawful debts. For example,
if your house is held in trust and passes to
your children at your death, a creditor could
demand that they pay the debt, up to the value
of the house. Ownership of real estate is always
a matter of public record, so creditors can
always find out who inherited real estate. It
can be more difficult for creditors to know who
inherits other property, however (because a
trust document, unlike a will, is not a matter
of public record), and they may not bother
tracking it down.
On the other hand, probate can also offer a
kind of protection from creditors. During
probate, known creditors must be notified of the
death and given a chance to file claims. If they
miss the deadline to file, they're out of luck
forever.
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If I make a living trust, do I still need
a will?
Yes, you do -- and here's why:
A will is an essential back-up device for
property that you don't transfer to yourself as
trustee. For example, if you acquire property
shortly before you die, you may not think to
transfer ownership of it to your trust -- which
means that it won't pass under the terms of the
trust document. But in your will, you can
include a clause that names someone to get all
of the property that you haven't left to a
specific beneficiary.
If you don't have a will, any property that
isn't transferred by your living trust or other
probate-avoidance device (such as joint tenancy)
will go to your closest relatives in an order
determined by state law. These laws may not
distribute property in the way you would have
chosen.
For more on wills, see
Wills FAQ.
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Can a living trust reduce estate taxes?
A simple probate-avoidance living trust has
no effect on taxes. More complicated living
trusts, however, can greatly reduce the federal
estate tax bill for people who own a lot of
valuable assets.
One tax-saving living trust is designed
primarily for married couples with children.
It's commonly called an AB trust, though it goes
by many other names, including "credit shelter
trust," "exemption trust," "marital life estate
trust," and "marital bypass trust." Each spouse
leaves property, in trust, to the other for
life, and then to the children. This type of
trust can save up to hundreds of thousands of
dollars in estate taxes, money that will be
passed on to the couple's final inheritors.
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Make Your Own Living Trust |
| With Nolo's
Online Living Trust you can
create a living trust online
with maximum ease and minimum
cost. Just log in, answer
questions about yourself and
your property, and print. Nolo
provides legal and practical
information to help you every
step of the way. |
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