Creating a Living Trust: A Comprehensive Guide for Individuals

Creating a living trust is a critical step in estate planning. This guide will walk you through the process from determining the type of trust you want to create to making sure your trust is properly finalized and funded.

Introduction to Living Trusts

A living trust is a legal document that allows you to manage your property during your lifetime and distribute it to your beneficiaries after your death. Unlike a will, a living trust avoids the probate process, ensuring a smoother transfer of assets. This guide covers the three main parts of creating a living trust: constructing your trust, drafting your trust documents, and resting your trust.

Part 1: Constructing Your Trust

Determining the Type of Trust

For married couples, deciding whether to create an individual or joint trust is crucial. An individual trust holds only your property, while a joint trust can include both spouses' assets. While two individual trusts can be created, a joint trust simplifies the distribution of shared property.

Listing Your Assets

Making a comprehensive list of your assets is essential. This list will help you determine how to distribute your property and identify assets that should remain outside your trust, such as retirement accounts with designated beneficiaries. Use this list to create a clear picture of your estate and decide on the specific distribution plan.

Gathering Paperwork

Assemble the necessary paperwork, including account numbers and locations, to transfer the title of your assets to the trust. Ensure that all information is accurate to avoid any complications during the transfer process.

Choosing Beneficiaries and Successor Trustees

Designate beneficiaries who will inherit your trust property and, if necessary, alternate beneficiaries. It's crucial to choose a successor trustee who can manage the property after your death. Typically, you would select a spouse or adult child, or name a bank or trust company as an alternate if the chosen trustee is unavailable.

Part 2: Drafting Your Trust Documents

Consulting an Attorney (if necessary)

While many individuals can create a simple living trust on their own, complex or significant assets may require professional assistance. You can find forms and templates online, but an experienced estate planning attorney can ensure compliance with state requirements and address any specific needs.

Using Forms and Templates

Search for free templates or sample living trusts online. Ensure that the form is approved for your state and covers all the assets you plan to include. Some forms may not be suitable for large estates, so verify their applicability.

Name and Identify the Trust

The first section of your trust should include your name, the name of the trust, and the type of trust you are creating. The name can be simple, such as your own name followed by 'living trust.' For example: Your Name Living Trust.

Establish the Identity and Responsibilities of the Trustee and Successor Trustee

Make sure to understand the responsibilities of the trustee and successor trustee. As the trustee, you have the rights and abilities to manage and distribute the trust property. After your death, the successor trustee will manage and distribute the property to the beneficiaries.

List the Beneficiaries of the Trust

Draft a list of your beneficiaries and, if needed, include a schedule of property to reference. For example, you might write: The Property listed in the attached schedule shall be distributed to the beneficiaries named below upon my death.

Part 3: Resting Your Trust

Signing Your Trust

Sign your trust declaration in the presence of a notary. Access notary publics at local courthouses or many banks offer notary services for free. Ensure you have more than one copy notarized for your records and your successor trustee.

Recording or Filing Your Trust Documents

Store your trust documents securely in a safe, safe deposit box, or with your attorney. Ensure that your successor trustee has a copy or knows where to find it. Unlike wills, trusts do not require filing with the court and do not leave a public record of your assets.

Transferring Title in Your Trust Property

Change the title of your trust property to the trustee's name. For real property, you will need to file a new deed. For example, your new titles or deeds might read: {Old Property Owner Name} as Trustee of {Trust Name}. Remember to add appropriate language for each document related to the property.

Applying for an Employer Identification Number (EIN)

An EIN is necessary to file tax returns for the trust. While the IRS does not require a separate tax return while you are alive, a return may be necessary after your death if the trust earns income. Apply for an EIN online at the IRS website to simplify the process for your successor trustee.

Conclusion

Creating a living trust is an invaluable step in estate planning. Follow these steps to ensure that your trust is properly constructed, drafted, and implemented. With a living trust, you can maintain control of your property during your lifetime and ensure a seamless transfer to your beneficiaries.