Is a Living Trust Liable or Subject to Probate?

By Regan Rondinelli-Haberek

A living trust holds assets that are managed by a trustee for intended beneficiaries. Also called a revocable trust, it differs from other trusts in that the trust creator, or grantor, can also serve as the trustee and can make changes to, or even revoke, the trust in its entirety during his lifetime. Living trusts are attractive because the grantor retains ultimate control over his assets while he is alive, but they are most commonly used to avoid probate.

How Living Trusts Avoid Probate

When a grantor creates a living trust, he funds the trust by titling assets to the trust. For example, if the grantor chooses to put his home in the trust, he must change the deed so that the trust is the named owner of the property. The same is true of bank accounts and other financial accounts, as well as titles to vehicles. Because the trust owns the property rather than the grantor, upon his death, the trust assets pass according to the terms of the trust, and probate is unnecessary. Trust funding is imperative because assets not titled to the trust may have to go through probate.

Pour-Over Wills

Either intentionally or unintentionally, a grantor may leave assets out of the trust. A pour-over will is often used in conjunction with a living trust, so that any assets left out of the trust “pour over” from the probate estate into the trust. In this case, the will must be probated so that probate assets can be titled to the trust upon the grantor’s death.

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A Living Trust Explained
 

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How Does a Living Trust Protect Assets?

Creating a trust to holds assets can help the grantor while he is alive and continue to serve him after his death. A living trust is created during the grantor's lifetime. It transfers title (ownership) of the grantor's property into the trust to be managed by a trustee for the benefit of a designated beneficiary. There are different types of living trusts and each can protect assets in a different way -- or not at all.

Living Trusts & Bank Accounts

You can place your bank accounts and other assets in a living trust so they bypass probate when you die. Avoiding probate generally saves time and money for the beneficiaries of your estate. You must physically change the titles of your assets from your individual name to the name of your trust for them to skip the probate process upon your death.

Taxes & the Advantages of Living Trusts

A living trust is a document that a person creates while he is still alive, which enables him to financially provide for the beneficiaries he names. The creator of the trust, or grantor, takes some of his property and gives it to a third party, known as a trustee. The trustee, a person chosen by the grantor, manages the property and distributes it to the beneficiaries, subject to terms outlined in the document that established the trust known as a trust agreement. A trust, if structured appropriately, can protect assets from creditors and can allow for assets to be transferred quickly without having to go through probate. What effect the trust will have on taxes depends on how the trust is structured.

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