Characteristics of a Living Trust

Defining Characteristics of a Living Trust

Often, when a person thinks about estate planning, the first thought is about the creation of a will. However, there are many more tools in the estate planning tool box, and for some a living trust may be the best option.

Living Trust Defined

A trust is a legally enforceable agreement established to allow for assets to be transferred to it and to be managed by a person called the Trustee. The Trustee has the duty to manage the trust for the benefit of another person called the Beneficiary. The person(s) who creates a trust is known as the Grantor(s). The Grantor entrusts the management of his or her property to the Trustee to manage for the benefit and best interests of one or more Beneficiaries of the Grantor's choosing. The Grantor does not have to designate another person as a Trustee to manage the trust and may designate himself or herself as Trustee. Similarly, the Grantor can also be one of or even the only initial Beneficiary. A trust is administered under the terms of the trust document.

A living trust is created during the lifetime of the Grantor rather than being created at death. A living trust is sometimes referred to as a revocable living trust because the Grantor is able to change or dissolve the trust at any time. A revocable trust becomes irrevocable upon the death of the Grantor(s).

Differences between a Will and a Living Trust

A will and a living trust are both instruments that contain directions on how to distribute property at the end of life. One of the major differences between a will and a living trust is when each becomes effective. The living trust is effective immediately upon signing whereas the will only becomes effective when the person dies. Another difference between the will and living trust is privacy. Unlike a living trust, a will is generally subject to probate, which is a court-administered process where a person's estate is supposed to be distributed according to the terms of the will. However, the probate process is often an open invitation to contest, and probate records are all available to the public.

The management and transfer of assets owned by a living trust avoids probate because ownership of the property transfers from the Trustee to the Beneficiary according to the trust document after the death of the Grantor. This occurs without the need for a probate court order because the Grantor established the rules and appointed a successor to carry out the terms of the trust. A will and a living trust also differ in terms of length of time and cost of administration at the end of the Grantor's life. The transfer of property ownership under a living trust can occur within a short time in comparison to the transfer of property ownership through probate, which can typically be measured in terms of months or longer. Because there is no statutory inventory or administration fee and much less paperwork required to manage the trust, the costs of administration varies greatly between the will and living trust.

The cost to create a will is generally less in comparison to a trust. A trust can require significant costs to prepare, fund and manage. However, the peace of mind, control, privacy and greater ease of administration after disability and death of the Grantor often make the living trust the choice of a person who has investigated the pros and cons of each. Finally, a living trust allows a Grantor who is also the Trustee to manage the assets of the trust as long as the Grantor/Trustee is able. In addition, a living trust allows the Grantor to name a successor Trustee to manage property for his or her benefit if the Grantor becomes incapacitated. If you live in Michigan and have questions about estate planning, contact an experienced Michigan estate planning attorney to discuss the estate planning options that are most appropriate for you.