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Friday, February 18, 2011

How to create a living trust

A living trust is a legal document that serves several purposes in the event of death of the primary trustee and concerns the assets of that person. Living trusts may be revocable or irrevocable, and each type has different legal protections, and functions. Depending on where the living trust is created, the effectiveness and creation of the document may have different requirements. This article will discuss the creation of living trusts in terms of its purpose, process and type. 

How to create a living trust


A living trust must be created in accordance with State law and therefore is ideally created by a lawyer licensed to practice law in that State. There are online legal services that allow state trusts to be customized online, one such example being lawyers.com. that offer 1 free legal document to first time users and/or within the free trial period of 30 days. There are several considerations and elements within a living trust that should be included in the document and defined before its creation. 

1. Define the purpose of a living trust 

There are many purposes for living trusts, therefore defining the purpose will aid in choosing the correct type of trust for that purpose. For example, in a generational skipping trust, assets are passed onto grandchildren rather than children in the event of death of the grantor or primary trustee. A more complete list if trusts can be found at livingtrustnetwork.com. 

2. Locate a reliable living trust creator 

Since living trusts can be complex especially in the case of large estates that will be divided in several ways, consulting a licensed trust attorney in one's state of permanent residence can be helpful. When choosing a source for the living trust be sure to ascertain the validity of the living trust by confirming the following details:

• State(s) of effectiveness
• Compliance with State laws and/or regulation
• Appropriateness of trust to individual and/or family goals
• Proper terminology and listing of beneficiary, trustees and assets 

3. Write the trust 

When the living trust is written it will include several items and will likely need to be notarized to become effective. Notarization may be performed by a licensed notary within an attorney's office or independently at an external licensed notary such as a bank notary. Some typical elements included in a trust are listed below.

• Type of trust i.e. revocable or irrevocable
• Sub-type of trust i.e. A/B trust
• Primary trustee/Grantor's name
• Secondary trustee(s) name(s)
• Asset list
• Distribution terms and allocation amounts 

4. Transfer chosen assets into the living trust 

After the living trust is completed, an additional step of signing over assets to the trust is necessary to avoid legal complication. This means ownership of all assets within the trust must become part of the trust. For example, a home's title deed can be signed over to the trust, bank accounts can be changed to list the trust as the owner etc. There may or may not be filing fees for some of the reclassification of assets. 

The purpose of living trusts 


Living trusts serve several purposes as made evident by the many types of living trusts available. Essentially, living trusts are created by living persons to pre-determine who will distribute assets after the death of the primary trustee and how it will be done. Living trusts provide legal protection to the passage of ownership after death of the grantor.

• Allows beneficiaries and/or trustees to avoid probate court
• Makes possible non-taxation of transferred funds if a trust company is owned by the trust
• Assigns a fund executor to carry out the provisions set forth in the living trust
• Defines how assets are distributed, to who they will be distributed and by whom
• Creates a legal entitlement to assets 

Types of living trusts 


There are two primary types of living trusts, revocable and irrevocable. These types of trusts are distinguished by their ability to reverse decisions set forth by the initial trust. For example, in a revocable living trust, trustees can be removed or added whereas in an irrevocable living trust, this is not the case.

In addition to these two primary trusts are several sub-types of living trusts that include the following according to livingtrustnetwork.com of the following trust sub-types determine how assets are used, allocated and treated when the terms and instructions of the living trust are implemented.

• A/B Trusts
• Asset protection trusts
• By-pass trusts
• Charitable trusts
• Generation skipping trusts
• Grantor trusts
• Life insurance trusts

Creating a living trust can be done relatively easily but takes a few important considerations regarding the distribution of one's assets after death. These types of trusts come in several types as outlined above and are ideally prepared by an attorney familiar with and skilled in the creation of such documents.

To create less expensive living trusts, online legal trusts may be obtained through state specific documents available through websites such as lawyers.com. When the purpose and use of the trust is defined, the document is then customized, signed by the relevant parties such as the grantor and trustees and then assets are legally reassigned to the trusts ownership.

Sources:

1. http://trusts-estates.lawyers.com/State-Living-Trust-Forms.html
2.http://livingtrustnetwork.com/revocable-living-trusts/types-of-trusts.html