Make Your Living Trust

Trust with many names:

This book uses the term “living trust” to describe a basic estate planning trust that distributes property and keeps it out of probate. You might also hear this type of trust called a “revocable living trust” or an “inter vivos trust.” In the world of estate planning, each of these terms describes the same type of trust—one that takes effect while you’re alive and that you can change or revoke at any time. 1.1 Living Trust Basics/ p. 2

Key Stages of a Living Trust’s Lifecycle:

1. ​You create the trust. To make your living trust, you will:
- Create a trust document.
- Sign it and have it notarized.
- Transfer property into the trust.

2. ​You control the trust. During your life, you can:
- Change the terms of the trust.
- Add or remove trust property.
- Revoke the trust.
If you become unable to manage your affairs, the person you named as successor trustee will manage trust property until you are well.

3. ​Your successor trustee takes over. After you die, your successor trustee will:
- Communicate with your beneficiaries.
- Distribute trust property according to the terms of the trust.
- Pay taxes, debts, and other obligations (if there is no executor to do it).
- Manage any ongoing issues related to trust property. 1. Living Trust Basics/ p. 3

Creating a Living Trust:

1. Make the trust document.
2. Make it legal.
3. Transfer property into the trust 1.1.1 Creating a Living Trust/ p. 4

CAUTION: You must transfer your assets to the trust---this is not optional. We are going to say this several times throughout this book because forgetting to transfer property to the trust (or doing so incorrectly) is a common mistake and a disaster. Assests that remain outside the trust will, in most cases, be distributed through probate---the very process you intended to avoid.1.1.1 Creating a Living Trust/ p. 6

While alive you retain control:

You might occasionally need to prove to a third party that the trust exists. For example, a bank will want to see proof of the trust before it changes an account in your name into your name as trustee. To assure the bank that the trust exists and that you are the trustee, without handing over the entire trust document (which you might want to keep private), you can use a “Certification of Trust” that summarizes the key points of the trust, like the name of the trust, the names of the trustees, and the date on which the trust was signed.1.1.2 While Alive You Retain Control/ p. 7

After You Die, the Successor Trustee Takes Over:

After you die, the person you named in your trust document to be the successor trustee takes over. This person transfers trust property to the relatives, friends, entities, or charities you named as the trust beneficiaries. No probate is necessary for property held in trust. In many cases, the successor trustee can handle the whole thing within a few weeks. Sometimes, however, trusts have more long-term needs. For example, say your trust leaves money to a child to use for educational purposes until they turn 25, at which point they can have it outright. The successor trustee will manage that property and decide how to spend it until the child turns 25. Depending on the child’s age, this could be years or decades. After the successor trustee has transferred all trust property to the beneficiaries, the living trust ceases to exist. In the overwhelming number of cases, the trustee will never have to go to court or file any documents, even when the job is done. 1.1.3 After You Die, the Successor Trustee Takes Over/ p. 8

Benefits of Living Trusts:

1. Determining Who Gets Your Property
2. Avoiding Propbate
3. Avoiding the Need for a Conservatorship or Guardianship
4. Keeping Your Estate Plan Confidential
5. Planning for Long-Term Property Management 1.2 Benefits of Living Trusts/ p. 9

About Probate:

After someone dies, an inventory of their estate (everything they own and owe) must be taken; bills, taxes, and other obligations must be paid; and any remaining property must be distributed to the people who legally deserve it. The deceased person’s family (or more commonly, the lawyer they hire) does the actual inventory and distribution, but the probate court oversees the process through rigid and sometimes convoluted systems. Court bureaucracy and calendar backups usually cause probate to take a long time—at least six months, often a year or more. During that time, the court puts a freeze on financial accounts, the family can’t sell or transfer real estate, and beneficiaries cannot receive any property from the estate. Although it might strain credulity at times, the purpose of probate is not to delay and frustrate—it’s to make sure that the deceased person’s wishes are, in fact, being followed. During that time, the estate will also rack up court and lawyer fees. The size of these costs usually depends on the location and the complexity of the estate. But you can count on them being more than you want them to be—often a significant percent of the value of the estate, even for relatively simple situations. In fact, some states have statutory schemes for calculating attorneys’ fees based on the gross value of the estate, regardless of the estate’s complexity. These calculations can result in outrageous fees for what is essentially (in simple estates) just paperwork.1.2.2 Avoiding Probate/ p. 10

How Living Trusts Avoid Probate:

When you make a living trust and name a successor trustee, you’re accepting that instead of having the probate court oversee the distribution of your estate, your successor trustee will do it. If all goes well, the successor trustee does not have to file anything with the court and can distribute trust property as you’ve instructed in the trust document.

It will be a lot of work for your trustee, who might still need help from lawyers or financial professionals. However, compared to sending your estate through probate, you can count on your living trust to provide significant savings of time and money for your beneficiaries and the people responsible for wrapping up your estate.1.2.2 Avoiding Probate/ p. 11

Avoiding the Need for a Conservatorship or Guardianship:

If you haven’t made a living trust or other arrangements (like a durable power of attorney) for someone to take over your finances if you become incapacitated, a court must appoint someone to do it. Typically, the spouse or adult child of the incapacitated person seeks this authority and is called a conservator or guardian.

It’s generally a good idea to avoid conservatorships because the court process of assigning a conservator can be time-consuming, expensive, and even embarrassing. Your loved ones would have to ask the court to rule that you cannot take care of your own affairs—a public airing of a very private matter. And there’s also no guarantee that the judge would appoint the person you would have chosen to do the job.

Using a living trust can avoid conservatorships because your successor trustee will already be appointed to manage trust property. 1.2.3 Avoiding the Need for a Conservatorship or Guardianship/ p. 12

Keeping Your Estate Plan Confidential:

If you have a will, your executor must file it with the probate court when you die, and the will becomes a matter of public record. In contrast, in most states, a living trust isn’t filed with the court, and (unless someone legally challenges the trust or the trustee) the trust never becomes part of any public record.

A few states require living trusts to be “registered” with the local county probate court, and many others allow it. Registration acknowledges the trust’s existence and gives the court jurisdiction over any disputes involving it. However, neither you nor the estate will face penalties for not registering, and the court will still have jurisdiction if a dispute is filed. So, registration is not a privacy concern to worry about. 1.2.4 Keeping Your Estate Plan Confidential/ p. 13

Planning for Long-Term Property Management

Another advantage of using a living trust to avoid probate (specifically compared to wills) is that living trusts can be useful for estate plans that take a long time to resolve. For example, if you want to give your child their inheritance a little at a time over many years, you could set your living trust up to handle this. Your successor trustee could manage that property for as long as necessary without any court intervention.1.2.4 Planning for Long-Term Property Management/ p. 13

What living trusts cannot do:

1. Shelter assets for Medicaid Eligibility
2. Convey Your Wishes About Medical Intervention
3. Protect assets from creditors.
4. Protect assets from Gift and Estate Tax Liability
5. Change your obligations to your family
6. Nominate a personal guardian for your minor child1.3 What Living Trusts Cannot Do/ p. 13

Shelter Assets for Purposes of Medicaid Eligibility

Assets held in a living trust are “countable resources” for purposes of Medicaid qualification. Because you have complete control over trust assets, the government considers them the same as if you owned them in your own name.1.3.1 Shelter Assets for Purposes of Medicaid Eligibility/ p. 14

Convey Your Wishes About Medical Intervention

You’ll need health care directives—like a living will and a medical durable power of attorney—to make your wishes clear and legally binding.1.3.2 Convey Your Wishes About Medical Intervention/ p. 15

Protect Assets From Creditors

Because you keep the power to transfer the property back to yourself or revoke the trust entirely, if a creditor sues you and wins, and a court issues a judgment against you, the creditor can seize trust property to pay off the judgment.1.3.3 Protect Assets From Creditors/ p. 15

Protect Assets From Gift and Estate Tax Liability

A basic revocable living trust cannot reduce federal gift and estate taxes. The IRS calculates the amount of tax your estate will owe after your death using the value of the taxable gifts you made during your life combined with the value of your estate at your death. Gifts you make through your living trust do not affect this calculation. However, keep in mind that most people do not need to worry about federal estate and gift taxes. In 2025, only estates valued over $13.99 million (including taxable gifts made during your life) will be liable for estate taxes. The estates of married couples are even less likely to owe gift and estate tax because together they can leave a combined estate of up to $27.98 million in assets without owing federal gift or estate tax. If your estate is large enough to be concerned about estate taxes (or if you’re concerned because you live in one of the handful of states with a lower threshold for state estate taxes), other types of trusts can help reduce your estate tax liability. For example, if you and your partner are unmarried and your combined estates are close to the nearly $14 million threshold for individuals, you can use an “AB trust” to keep the last-living partner from owing estate tax on the combined amount. 1.3.4 Protect Assets From Gift and Estate Tax Liability/ p. 15

Change Your Obligations to Your Family

Most married people leave much, if not all, of their property to their spouses. But if you don’t leave your spouse at least half of your property, your spouse might have the right to go to court and claim some of your property after your death. Some or all of the property you had earmarked for other beneficiaries would go to your spouse. Some states also protect a spouse’s right to the marital home.1.3.5 Change Your Obligations to Your Family/ p. 16