A trust can seem like a mysterious creature, dreamed up by lawyers, wrapped in legal jargon, and used for mysterious purposes. But in practice, a standard probate-avoidance trust isn’t complicated. Here are the basics.
Trust Basics
The kind of trust that avoids probate is called a revocable living trust. You can create one simply by preparing and signing a document called a declaration (or instrument) of trust. If you and your spouse own valuable property together, you’ll probably want to create one trust together.
The trust document, much like a will, names the people or institutions you want to inherit each item of trust property. The cost of a Trust depends on whether you create one online or with a lawyer, it may range between $400 and $3000 or more. One significant advantage of a living trust over simpler probate-avoidance methods is that you can name alternate beneficiaries—people who will inherit if your first choice does not survive you. You can even name alternates for your alternates, if you want an extra layer of contingency planning.
Once you’ve signed the trust document, you transfer your property—real estate, stocks, bank accounts, whatever—to the trustee, who becomes the legal owner. This step is crucial. If you don’t transfer ownership, in writing, to the trustee, the trust document has no effect on what happens to the property at your death. Keep in mind that each state may have it’s own specific requirements when it comes to creating a legally valid Living Trust, read more about Florida Living Trust forms and requirements for every other state.
Holding property in trust has almost no day-to-day effect while you’re alive. For all practical purposes, it’s as if you still owned it. The property is treated the same way it was before by the government when it assesses income or estate taxes, and by creditors when they are looking to collect on a debt you owe.
Who’s in Charge
The trustee is in charge of trust property. You (or you and your spouse, if you create a trust together) are the trustee of your revocable living trust, which means that you keep complete control of all the trust property. As trustee, you can transfer property in and out of the trust, change the beneficiaries you’ve named, or revoke the trust completely.
How Property Is Transferred After Your Death
After you die, the person you named in your trust document to be the “successor trustee” takes over as trustee. He or she is in charge of transferring the trust property to the family, friends, or charities you named as the trust beneficiaries. In most cases, the whole transfer process can be handled within a few weeks at little or no cost.
No probate is necessary for property that was held in trust. For example, if you left real estate in your trust to your son Paul, the successor trustee can simply sign a deed transferring the property from the trust to Paul.
With property like bank accounts or securities, the successor trustee will need to show the institution that he or she has the legal right to take possession of the property. Banks and brokers, which have long experience with living trusts, generally accept the authority of the successor trustee without a fuss after examining a copy of the trust document, with its notarized signature.
Occasionally, however, an institution balks at the idea of releasing a deceased client’s money without further proof of authority. It might, for example, demand more proof that the trust is valid or that it hasn’t been revoked. In a few instances, institutions have threatened to withhold trust funds until they were shown a “certification” of validity by the lawyer or bank involved in drawing up the trust—even if that was impossible because no lawyer or bank had been involved.
No law requires that a lawyer, broker, or bank be involved with a living trust in any capacity. Requiring the signature of a lawyer or bank is simply a bureaucratic rule, imposed by financial institutions afraid of liability for turning over money to the wrong person. So shaking the money loose will not be an insurmountable problem, even if no lawyer drafted the trust. The successor trustee must simply be persistent. The bank should relent if the successor trustee produces the original, signed and notarized trust document, and offers his or her own notarized statement, stating that the trust is in full force and effect. When all the trust property has been transferred to the beneficiaries, the living trust ceases to exist.
