Revocable living trusts allow assets placed in the trust to avoid going through the probate process after your death, while permitting you to control these assets during your lifetime. You may change the trust, even terminate it, at any time. When you die, the trust usually becomes irrevocable, with no changes permitted. Although living trust procedures are relatively straightforward, laws regarding these instruments vary by state.
Creating the Trust
Your attorney may prepare the trust agreement, or you may order a trust kit from a legal document website. The trust names the settlor, or person creating the trust; the trustee, who manages the trust's assets; and beneficiaries. For your living trust, you can be all three of these entities. You must name a successor trustee to manage the trust after you die. Once the trust agreement is signed by the settlor and trustee and notarized, assets are turned over to the trust. For example, if you place your house in the trust, you no longer own it. It belongs to the trust, with you, or whomever you have named, as the trustee.
Tax Identification Number
The trust must obtain its own tax identification number from the Internal Revenue Service. You cannot use your own Social Security number for trust purposes, as assets placed in the trust no longer belong to you. Any income you receive from trust assets must be reported on your tax returns. If you are both the settlor and trustee, the IRS does not require the trust to file a separate income tax return, but it is necessary if these positions are held by different people or entities.
Funding the Living Trust
You may initially fund the trust with a nominal amount of money, creating an "unfunded trust." Assets may be added to it over time, funding the trust. Some assets are difficult to place into a living trust, such as art or jewelry. Insurance companies may not cover motor vehicles placed in a living trust. If funding the trust in your lifetime, title to all assets in the trust are transferred to the trustee, either you or whomever you have named. All documents relating to these assets must be retitled, such as your deed, bank and brokerage accounts, mutual funds and stocks and bonds.
Creating a living trust does not eliminate the need for a will. If you do not have a will, any assets titled only in your name that do not have designated beneficiaries, such as retirement accounts or accounts with payable-on-death or transfer-on-death provisions, are subject to your state's laws of intestate succession. These statutes determine how to distribute the assets of people who die without wills, based on marital and blood relationships. To avoid this, your attorney or legal website can create a "pour-over" will that provides for property distribution for assets not included in the trust.