How to create a will and trust

A living trust keeps these assets safe until they transfer to your beneficiaries. This overview explains living trusts, how to create them, and why you may need one to replace, or supplement, a last will and testament.

What Is a Living Trust?

A trust is an arrangement where an individual or corporation controls and manages another's assets to benefit other parties. There are several types of trusts that hold different types of assets for specific purposes.

A living trust is an estate planning document that designates who receives your assets after your death. Other names for it include revocable living trust and inter-vivos trust.

Other types of trusts become effective when you die, and they are irrevocable—meaning no one, not even the successor trustee, can change it. A living trust is different. During your lifetime, you maintain ownership of trust assets. You can add or remove assets, change beneficiaries, name new trustees or successor trustees, or even revoke the trust. Once you die, the trustee transfers your property to beneficiaries, and the trust no longer exists. The transfers occur automatically without probate proceedings or other court involvement.

Parties in a Living Trust

There are several parties to a trust, some with overlapping roles. The one who drafts and funds the trust (you) is the grantor or trustor. A trustee manages the trust assets. Trustors often act as trustees unless they decide to designate another individual or a trust company (some financial service companies, for example, have trust departments that serve as trustees for clients).

You can also appoint co-trustees or co-grantors who own and manage the assets with you. If one co-trustee dies, the other one assumes full control of the trust. Co-trustees are usually the spouses of trustors. However, you can choose a live-in partner, close friend, or other family members.

A successor trustee manages the trust if you become incapacitated or when you pass away. Even if you appointed a co-trustee, appoint a successor trustee too. There are events where you and the co-trustee may pass away at the same time. If that happens and you do not have a successor trustee, your estate will go to probate, and the court appoints an executor to manage it. While the executor will likely honor the wishes outlined in your trust document, the probate process takes more time to complete transfers to your loved ones.

Living Trust Property

You do not need to add all property to a living trust. Items with low value or equity (like cars carrying loans or standard personal belongings) do not need to be trust property.

However, high-value assets should transfer to the trust. They include:

• Real property and real estate (primary residence, vacation homes, rental units, commercial buildings, and land)
• Financial assets (bank accounts and cash)
• Securities (stocks, bonds, and mutual funds)
• Rare or valuable personal property including antiques, furs, jewelry, artwork, and collections (e.g., stamps, sports memorabilia)

If you are uncertain of the value of any asset, schedule an appraisal. It is better to determine that an item or collection contains only sentimental value rather than risk it causing a dispute with your trust after you die.

How is a Living Trust Different From a Will?

A last will and testament, or will, is a legal document that states how you want assets distributed after you die. It is the primary estate planning document for most people. Wills address assets, debts, safe deposit boxes, real estate, personal property, and preferences regarding your memorial service and guardians for any minor children.

The will appoints an executor, who manages the disposition of your estate and honors your wishes. When you pass away, the executor submits your will to probate court to start the process. The court acts as an overseer to ensure all transactions are legitimate and debts paid (if those creditors submit proof of claim). These proceedings are part of the public record.

A living trust is a legal document that creates a fiduciary relationship where another party handles property to benefit third parties. As discussed above, the trustor appoints a trustee to manage the property you place into the trust. Beneficiaries may include your spouse or live-in partner, children, dependent adults, or anyone who receives your support and care.

Unlike a will, property in the living trust passes immediately to your beneficiaries when you die. There is no need to probate a will or undergo the court process.

However, you cannot designate a guardian for minor children or disinherit wayward relatives in a trust. Fortunately, trusts and wills are not mutually exclusive. You can draft a living trust to facilitate the instant transfer of some property while also preparing a will to name guardians, distribute property outside the trust, set up charitable or other types of trusts, and disinherit those who deserve it. While your executor still needs to initiate probate, your essential property transfers quicker through the living trust, so those beneficiaries do not have to wait. Then, probate only has to handle the less critical property transfers and finalize any guardianships.

Why Have One?

Consider adding a living trust to an estate plan if you face any of the following circumstances:

1. You face estate taxes

The Estate Tax and Jobs Act raised the estate tax deduction to $11.7 million. Unless your estate value exceeds that amount, you do not face federal estate tax. However, if your assets' value is close to that, expect them to gain value by the time you pass away and perhaps exceed the deduction. In that case, it is often safer to remove high-value assets into a living trust and avoid estate taxes.

2. You want to hold an inheritance for your minor children

A living trust can hold your minor children's inheritance until they are old enough to manage the property independently. It can distribute payments once a child starts college or reaches certain ages—for example, you can roll the assets into another trust where children receive payments at ages 25, 30, and 35.

3. You have children with challenges

The trust also controls the distribution if your adult children might waste the money or spend it on their alcohol or drug addiction. You can designate payments if your child starts rehab or remains clean for at least one year.

Trusts also prove useful if you care for adult children who remain dependent due to mental or physical disabilities. You can roll the assets into a care trust that ensures these individuals continue receiving supervision and medical care.

4. You need to avoid probate

If you have dependent adult children, a disabled spouse, or any other individual who relies on your support, a living trust allows for speedier distribution to these dependents. Many people do not want to risk a lapse in support because probate courts are slow or a will contest jams up the process. A living trust ensures seamless distribution and prevents possible income loss to your dependents.

5. You wish to keep money in your family

Even well-adjusted adult children make bad decisions regarding partners. If your offspring marry someone less savory or find themselves in an abusive relationship, a trust keeps your assets from passing to that spouse in divorce proceedings. Instead, it remains with your child and grandchildren.

6. You are single with significant assets (or business interest)

If you are single and manage real estate, a business, or other significant assets, you may not have a back-up if an accident or illness leaves you incapacitated. Your affairs either go dormant, or you lose an income stream during a challenging and expensive time in your life.

In these cases, a trust keeps your affairs moving forward and provides support and income while you recover. Your successor trustee acts as a ready agent when you cannot advocate or make decisions for yourself. This situation shows that a living trust is just as appropriate for young adults as older and more established individuals.

7. You wish to maintain privacy

Probate proceedings are public, meaning anyone could look up your court file and see your preferences, inventory, and transactions. A living trust is private, and none of its information is available to the public. The only way this can change is if there are any lawsuits connected to the trust.

Making a Living Trust

Making a living trust requires substantial preparation before you start filling out a form and notarizing. Here are your steps to prepare, draft, and finalize your trust.

Preliminary Steps

Living trusts require preparation. Before you draft the documents, complete the following steps:

1. List your assets. Start by listing everything you own. Include tangible items like homes, vacation properties, and cars, but do not forget the intangible assets like bank accounts, stocks, bonds, and life insurance policies. When you compile this list, you will get a better idea of what you need to manage and who you want to benefit from the property.
2. Find deeds and certificates. Find all the papers that prove ownership in these items. You need deeds or titles to real property and titles for automobiles. For intangible assets, find account information and stock certificates. Place these documents together, so they are ready when you transfer property into the trust.
3. List beneficiaries. Consider who you wish to support with the trust, including any of their particular needs. Beneficiaries may include family members, charitable organizations, beloved friends, and anyone you want to receive your property. When you consider these people, remember that retirement benefits and life insurance policies already designate beneficiaries. You may keep these assets out of the living trust or change beneficiaries to be consistent with the living trust.
4. Consider trustees. As explained above, the trustee administers the assets in your trust. Generally, you will name yourself as trustee or name yourself and your spouse as co-trustees. However, even if you are in a committed relationship, you must still appoint a successor trustee in case you and your co-trustee die simultaneously. That individual can be an adult child, trusted friend, business partner, or even a bank or trust company.

Once you lay out these details and understand the big picture for your living trust, you can move forward with making a living trust.

Trust Formation

Here are the steps in making your living trust:

1. Complete the trust document

The document creating the trust is called a declaration of trust. You have two options for making it. One, you can hire an attorney to draft the living trust. The other option is to purchase a living trust form and complete it.

Once secured, fill in your name and the names of your trustees, successor trustees, and beneficiaries in the sections requiring that information. Use your list of assets to add property descriptions in the trust and indicate who receives what when you pass away. When you finish the trust document, find an estate planning law firm to review the form and make sure it complies with your state's laws and supports your best interests.

2. Sign and notarize the trust document

Most states require your signature and a notary endorsement before your trust is enforceable. You can find a notary public at your bank branch or in a print and mail store that offers notary services. If you hire an attorney, you will have ready access to a notary since many attorneys, legal assistants, and paralegals are notary publics as well.

3. Transfer property into the trust

Unless you take this step, your trust will not be effective. Unfortunately, it is also the most time-consuming and detail-oriented step in trust formation, but it is easier if you gathered all your titles and certificates first.

When you change ownership, you will switch it from you to yourself as trustee, e.g., from 'Anna Smith' to 'Anna Smith Revocable Living Trust dated March 1, 2021." For real estate, use a quitclaim deed to create a new deed showing the living trust as the property owner. Limit these transfers to high-value assets like stocks, bonds, homes, and real estate. Unless you want a car to pass to a specific person (or it is a high-value classic car), leave it out. For stocks, bonds, and other brokerage accounts, ask your broker or agent to assist in the transfers.

4. Transfer business interests into the trust

If you own a small business, you may consider placing it in the trust so it continues even after your death. For a sole proprietorship (one-person shop), name the business in the trust and transfer assets like other property types. If you are part of a partnership, you can only transfer your ownership interest in the trust. That transfer requires modifying the partnership agreement, so the trust is the partner, not you. For corporations, you need to cancel your original ownership certificate and have your board of directors issue a new one to the trust.

5. Store your living trust document

Once you complete the living trust document and transfer property, store it in a secure place, like a fireproof safe at home or a safe deposit box. Keep the certificates and titles (now with the trust as the owner) in the same place. Provide copies of the trust document to other trustees, successor trustees, and beneficiaries.

6. Draft supplemental documentation

Even if you draft a living trust, you still need a last will and testament to transfer property outside the trust, handle any excess not addressed in the trust, or designate a guardian for your minor children.

You can find will forms online or ask an estate planning attorney to draft one in addition to the trust. You can also consider other documents for your estate plan like living wills, healthcare powers of attorney, durable powers of attorney, or advance directives.

Do You Need an Attorney?

Living trust forms are relatively simple to complete and finalize for some people. If your property is easily transferable and there are few complicating factors regarding it, you can likely finish the document and property transfers on your own.

However, all legal documents should undergo attorney review. Even if you believe your situation is simple and the living trust covers all aspects, schedule a consultation with an estate planning attorney to read over the living trust document and ensure it is correct and enforceable.

But not all situations lend themselves to a do-it-yourself approach. Consider securing legal advice for your living trust matter if you face any of the following:

• You own a business or multiple business interests
• You have extenuating issues like intense family conflict or adult children with spending or addiction problems
• You require additional estate planning documents to supplement your trust, like medical care trusts for adult dependents, charitable trusts, or a will to address property or matters not handled by living trusts
• You have a chronic or terminal illness that may result in future incapacity

While this article offers a thorough explanation of making a living trust, speaking with a knowledgeable attorney is the best way to ensure your estate planning documents provide for your loved ones and enforce your last wishes. Use our helpful attorney search page to find an estate planning lawyer in your area.

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