How do living trusts work

If any of your beneficiaries inherit trust property while still young not yet 35 , the successor trustee or the surviving grantor, if you made a trust with someone has more responsibilities.

The successor trustee will follow the instructions you left in the trust document, and either:. In the trust document, she makes herself the trustee and appoints her son Ben as successor trustee, to take over as trustee after her death.

She transfers her valuable property -- her house, savings accounts and stocks -- to the living trust. The trust document states that Lenora's grandson, Max, is to receive the stocks when she dies.

She provides that if Max is not yet 27 when she dies, the stocks will stay in a "child's subtrust," managed by the successor trustee Ben. Everything else goes to her son Ben. When Lenora dies, Ben becomes trustee. He follows the terms of the trust document and, in his capacity as trustee, distributes all the trust property -- except the stocks -- to himself, without probate. Ben also manages the stocks inherited by Max, who is 16 at Lenora's death, until his 27th birthday.

When all the property in the subtrust is given to Max or spent on his behalf, the subtrust ends. A revocable trust only allows you to decide when your children can receive their inheritance and who will administer the trust until the children reach Overall, wills are easier and cheaper to set up than trusts, and effective in keeping your family outside of probate court.

Trusts, on the other hand, are valuable for complex estates with more assets. And because they are private, staying out of the public eye can also help keep wealth in the family. Here are some of the reasons a revocable trust should be part of your estate plan. Revocable living trusts allow you to make amendments at your own discretion.

That flexibility also makes these trusts a popular option if you are starting your estate planning young. As outlined above, a living trust covers grantors during three phases of life. If you become incapacitated, your trustee can take over and manage your affairs. This happens automatically.

You do not need to go through court proceedings or appointed conservators. Revocable living trusts also account for guardianship. You can stipulate living situations and spending habits for minor children in the terms of your trust. If you have a will when you die, your assets will go through probate. That is a court proceeding where your assets are distributed per your stipulations. Probate is a relatively slow process that that can take up to several months. If you own property in more than one state, your beneficiaries may have to go through multiple probates.

The costs of going through probate can also cut down what your beneficiaries inherit. With revocable living trusts, probate is not necessary. Your successor trustee will be able to pass your assets on to your beneficiaries without the need to wait for a court order. That usually means a quicker and more affordable process for your beneficiaries.

So that means you will need to spend some time and money to properly set up and maintain your trust. However, that work can save you the headache and higher expenses associated with probate. Living trusts also tend to hold up better if someone contests a provision, potentially saving more money and time.

After your death, wills and their requisite transactions enter into public record. Anyone can see what stipulations are in your will, who your beneficiaries are and what each beneficiary is inheriting.

Estates in a living trust are distributed in private. No one can search the public records to see where your assets went. This protects the privacy of your assets as well as your beneficiaries. Why do people create living trusts?

It goes quickly, is private for the most part, and does not cost much money. Living trusts can be and are contested, just like a will. Administering a living trust after your death is not cost-free. Even if probate is avoided, the successor trustee should usually seek help from a lawyer in making sure that your debts are paid, all of the necessary tax forms filed and the assets in your trust legally distributed to your beneficiaries.

After your death, your living trust will not cut off the claims of your creditors against the trust corpus. For that reason, the successor trustee will often open a probate estate anyway, to require your creditors to file claims within the time required by law or be barred from collecting their claims against your estate.

Living trusts are much more expensive to set up and maintain than a will. Probate can often be avoided without using a living trust, by setting up "payable on death" accounts, making beneficiary designations, holding assets jointly, etc. In many instances, the trustor has failed to transfer all of his "probate assets" to his living trust.

Consequently, when the trustor dies, this probate asset becomes subject to probate. His estate winds up in probate court anyway. So the trustor pays twice: first, to set up his living trust intending to avoid probate; and second, after his death, to go to probate court. Living trusts do not protect your assets from creditors and lawsuits.

Living trusts are no more effective than wills in saving state and federal estate taxes. Living trusts can adversely affect your eligibility for Medicaid nursing home benefits. Living trusts are not necessary to manage your property if you become disabled. Some salespeople sell living trusts so they can learn what assets you own.