Today, many people who create an estate plan include a revocable living trust as a foundational piece. The great benefit of a revocable living trust lies in its ability to allow your estate to avoid, or at least minimize, the effect probate will play in transferring estate property.
Unfortunately, most people have little experience dealing with trust, and don’t really understand how they operate. To help you better grasp the concept of what a living trust is and how it works, we’ve come up with these three tips you can keep in mind as you go about creating, and using, a revocable living trust of your own.
Living Trust Tip 1. Don’t think of it as a trust, think of it like a corporation.
Why do you need a trust? Aren’t trusts only for rich people who want to give money to their children? Isn’t it easier or less expensive to not go through the process of creating a trust?
A lot of people have these kinds of questions when their lawyer tells them that creating a revocable living trust would be in their best interest. These types of questions often arise because the term “trust” is so misunderstood.
So, to get around this problem, try to think of your trust as a corporation. While there are many technical differences between a trust and a corporation, there are some conceptual similarities.
When you establish this corporation, it takes on a legal existence. It can, like other companies, own property. It can also survive your death. Together, these two abilities make a living trust incredibly useful because you can use them to transfer inheritances to people after you die that would otherwise have to go to the probate process.
Living Trust Tip 2. Don’t worry about losing control of your property.
The basic process of creating a trust is simple. First, you develop a document that states the rules under which the trust must operate. Second, you transfer the property you own into the trust’s name. Third, your estate uses the trust to distribute property outside of probate after you die.
The second part of that equation makes a lot of people pause. After all, if the trust owns your property, does that mean you don’t own it anymore?
Again, we can look at the example of a corporation to help better understand this issue. There are many people involved with the running of a corporation. The managers of the corporation are responsible for overseeing the day-to-day operations, but don’t own the corporations assets. The shareholders are the actual owner.
A trust is somewhat similar, but the shareholders and the corporate managers are all the same person. In other words, when you create a trust you not only manage the trust property, but you also retain the ability to benefit from it, and use it as you see fit.