5 Key Steps to Creating a Living Trust

There are many benefits to having a living trust but, as with any legal document, it requires careful planning. In this article, you'll learn exactly what a living trust is, and explore five basic steps you should consider when establishing your own living trust.

The basics

A living trust is a legal entity that can own property and direct distribution of that property after a person's death, or if they become incapacitated. One of the primary benefits of a living trust is that it isn't subject to probate, or its associated costs and delays.

If you establish a trust, you (known as the grantor) appoint yourself as the initial trustee and primary beneficiary of the trust. You retain full and complete control over the property during your lifetime. In the living trust document, you appoint the individual(s) and/or entities that will take on the role as successor trustee when you can no longer act as the initial trustee.

The trustee manages and distributes the trust assets according to the terms of the trust.

TERM: Probate
When a person dies, the property from his estate can be transferred to the intended beneficiaries via a will. Probate is the process of properly transferring the estate to the rightful beneficiaries. This process is also used to collect any taxes due on the transfer of the property.

Does a living trust take the place of a will?

A living trust is sometimes referred to as a "will substitute." Although, in some respects, it does take the place of a will, a will is still usually necessary to distribute assets outside the trust, and to nominate guardians for minor children.