How to Execute a Living Trust

By Jeffry Olson, J.D.

How to Execute a Living Trust

By Jeffry Olson, J.D.

A living trust is an estate-planning tool executed by the person forming the trust, or the grantor, and the trustee. Living trusts are popular choices because they allow an individual to pass assets to heirs without the estate going through probate.

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A living trust allows the grantor to create a trust and transfer assets into the trust. The terms of the trust determine how the trustee distributes assets upon the death of the grantor. Assets can move freely into and out of the trust during the life of the grantor.

Upon the death of the grantor, the living trust becomes an irrevocable trust. The assets in the trust remain in place and may not transfer outside the terms of the trust. The trustee takes the appropriate steps as provided in the trust to distribute the assets of the trust to the beneficiaries.

Parties Involved in a Living Trust

Before knowing how to execute a living trust, it is important to know the terminology:

  • The grantor is the person who creates the trust and places property in it.
  • The trustee controls the assets in the trust. The grantor is the initial trustee.
  • Beneficiaries are the party for whom the grantor establishes the trust. The beneficiaries receive the property held in the trust.

Executing a Living Trust

Upon the death of the grantor, those involved must take legal steps to distribute the proceeds of the trust to the beneficiaries.

1. Obtain an affidavit of authority.

The affidavit of authority contains the name of the trust, the name of the trustee, the date the trust was signed, and the date of the grantor's death. The document must be signed by the trustee and notarized. Along with the trust document and certificate of the grantor's death, this establishes the authority of the trustee over the assets of the trust.

2. Identify property held in trust.

Trust documentation should include a list of assets held by the trust. Only assets held in the name of the trust are subject to its terms. Remaining property not titled in the name of the trust is subject to probate.

3. Notify beneficiaries.

Notify beneficiaries of the trust. Provide them with copies of the trust, and keep them informed as the process moves forward.

4. Appraise property of value.

The value of the assets determines distribution of those assets and potential tax consequences, including estate taxes. Each asset of value requires separate appraisal.

5. Pay expenses and debts.

When an estate's assets are in a living trust, debts of the estate become debts of the trust and must come out of trust assets. These debts might include funeral expenses, credit card balances, medical bills, taxes, and other valid obligations.

6. Transfer property.

The trust document explains how, to whom, and when the trustee distributes the assets of the trust to beneficiaries. The trustee must follow the directions of the trust. If not otherwise specified, the assets can transfer in the form of property or cash. This transfer occurs privately, outside of probate.

7. Close the trust.

After distributing the assets of the trust, the trustee closes the trust and cancels all accounts. The trustee provides a final trust accounting to the beneficiaries.

A living trust allows the grantor to transfer assets into (or out of) the trust during their lifetime. The grantor is the initial trustee, but they name a succeeding trustee to manage the trust after their death. After the grantor dies, the trustee takes steps to settle the grantor's estate and distribute assets to the beneficiaries.

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