A living trust is a legally created entity that holds property in trust for someone to distribute upon their death. Living trusts hold the advantage of avoiding probate, debt collectors, and the divorce courts. They keep assets safe for the lives of your spouse, children, and sometimes even your grandchildren. Trusts are formed using a legal document called a living trust document.
The introduction to the living trust document specifies the date the trust is established and who the grantor and trustee are. Typically, your city and state should also be mentioned in the introduction for further verification purposes.
The first section of the living trust should mention who the successor trustees are on the trust. Remember that a living trust is made while you are still alive, and unless the trust is revocable, you will be the first assigned trustee. In subsections of this document you can mention things such as the responsibilities and roles of your successor trustee as well as limitations on their abilities. For instance, if you do not want the trustee to sell the family home without the approval of all beneficiaries, you will specify it in this section. Finally, go over the business requirements for the trustee including any expectations of annual statements and reports for the beneficiaries and terms for the trustee’s resignation.
Article 2 will cover the transfer of all assets into the living trust. Typically the assets will not be listed in the section, but rather will be attached onto the document. This is also where you list the beneficiaries of the trust. Traditionally, the beneficiaries for the trust include your spouse and any children. For each beneficiary, list their full name, relationship to you, and their date of birth. This ensures proper referencing for once you die.
Article 3 discusses your reserved rights as the grantor. Traditionally, most living trusts are revocable, so you will want to specify how much discretion you wish to have with the trust. Typically trustees will retain the right to change the trust, the right to terminate the trust, and the right to withdraw or sell assets. If you are creating an irrevocable living trust, then this section will not be included.
These two articles will discuss how payments will be made from the trust during your life and after you die; upon comatose or being “disappeared” (like in the case of MH370). In these sections you can specify whether payments are made strictly from the interest of the account, or whether there will be a specified annual or monthly distribution. If you prefer to give the beneficiary greater discretion, you can specify that this is a care trust meant to meet the beneficiary’s daily needs.
Article 6 will detail what will happen to the trust’s overall structure during your spouse’s life and the lives of your children. Scenarios to consider here include minor children, spouse not surviving you, death of child, tax payments, any spendthrift provisions, and how the trust will be distributed upon its dissolution.
Trusts are complex legal documents that require very specific wording to remain valid. If you are interested in creating a living trust, contact an estate planning attorney to set up a consultation.