A living trust is used for estate planning and acts as a holding area for property. The person who creates the trust can retain control over his property in a revocable living trust. A trust can be created for many purposes, including caring for a child or elderly person or avoiding probate, which can be a lengthy process. The terms of the trust dictate when the trust beneficiaries receive the property in the trust. A living trust can be revocable, which means it can be amended or terminated by the person who created the trust, or irrevocable, which means it can be amended or terminated under limited circumstances, if at all. A grantor -- the person who creates a trust -- gives up all control over property in an irrevocable trust, whereas the grantor retains control over property in a revocable trust.
Cost of Setting Up a Trust
A trust may require money to set up. A grantor can create a trust without professional help -- for example, by using an online legal documentation service. If the grantor has many assets and is seeking to set up a complex trust, legal services may be required. The cost of legal services can vary depending on the location and hours required to set up the trust.
Funding a Trust
Transferring property into a trust is known as funding the trust. Every trust must have property for the trust to have a purpose. A trust does not have to be funded immediately after it is created, and it does not have to be funded all at once. A grantor can add property to a trust gradually. Property that is not retitled to a trust will be subject to probate when the grantor dies. Property within the trust does not have to go through the probate process, unlike the property named in a will. Property the grantor intends to be in the trust but does not actually re-title to the trust or name in the trust is subject to probate.
Which Assets to Transfer to a Trust
A grantor can add many types of property to a trust, including bank accounts, real estate, personal items, brokerage accounts, expensive jewelry, and valuable collections. Any property with a title should be retitled in the name of the trust. For example, if John Smith created a living trust, he can title his car in the name of his trust, "John Smith Trust, Trustee John Smith." Assets that already have a named beneficiary, such as life insurance and retirement accounts, do not need to be added to a trust. Those assets will avoid probate because they will automatically transfer to the named beneficiary.
A grantor or trustee can terminate a trust if the value of property in the trust does not justify the costs of administration. A trust may require work from an accountant or a lawyer, which may be costly. In the Uniform Trust Code -- which is a uniform set of laws regarding trusts adopted by nearly half the states -- a trust can be terminated for being uneconomical if the value of property in the trust is less than $100,000. States that have not adopted the Uniform Trust Code may still have a law applying to termination of uneconomic trusts. Grantors may want to keep this in mind when deciding whether to set up a trust and the value of property to put in the trust.