A living trust is a legal document created by a person, during his lifetime, to ensure that his property is in safe hands, in case of his death or incapacitation during his living years, for any reason. This kind of a fund is very beneficial to the successors of the trust maker as they no longer have to worry about undertaking probate proceedings i.e. proving in the court that they are the legal successors.
How Does it Work
When a person incorporates a living trust, he transfers the ownership of all his assets to the trust. By doing this, he relinquishes the rights to his property. The person then appoints a trustee who would manage the trust from now on. The trustee can be the person's successor, family member, a lawyer/law firm, or someone the person has faith in. A person, through this legal instrument, ensures that his property is safe and that the trustee would distribute it according to the way he intends to do. Now, let's learn about the various parties involved in this process.
Also known as the trust maker, grantor, or settlor is a person who establishes the trust by transferring his property to it.
The person appointed to handle the affairs of the trust. As mentioned above, it can be a lawyer or a family member. Living trusts are mostly revocable i.e. they can be changed or terminated by the grantor. In such a case, the grantor himself may be the trustee.
If the grantor is the trustee himself, then he has to appoint someone as a successor trustee, who would manage the trust in case of his death or incapacitation. The rights of the successor trustee, in case of such eventualities, will be the same as that of the grantor trustee, the only difference being that the former is allowed to act only in accordance with the grantor's instructions. He can transfer, sell, or buy assets of the trust according to what has already been laid down by the grantor.
These are the people who would inherit the assets in the trust upon the grantor's death. In case the grantor has made himself the beneficiary, his successors or those who would get the ownership of his assets, are called the remainder beneficiaries.
Establishing a living trust has many advantages. Firstly, the grantor can still remain the owner of the assets during his lifetime, in case he makes himself the trustee. For this, he simply signs a 'declaration of trust' naming himself as the trustee. Secondly, the beneficiaries do not have to go through the long and complicated probate process, since the successor trustee distributes all the assets to the beneficiaries. This transfer of assets usually takes lesser than a month and after this, the trust stands terminated. Thirdly, an irrevocable living trust can save a lot of tax for the grantor as he is no longer liable for the taxes imposed on the assets.
The major difference between a living trust and a will is that, the latter comes into force only after a person's death while the former is initiated during a person's lifetime. Thus, a living trust is a must for asset management, tax saving, and of course, one's peace of mind!