Living Trust Form is an official document used by an individual(s) (grantor) to transfer the benefits generated by or from their assets to another person (beneficiary) in the event that they pass away or become incapacitated.
The living trust becomes effective soon after the grantor passes on without being subjected to the probate process in court as in the case of a Last Will (will).
A living trust allows a grantor to select a successor trustee and beneficiary of his or her property and assets. The successor trustee, chosen by the grantor, is responsible by the authority given to them by a living trust for ensuring that all the property tied to the living trust is successfully transferred to all of the beneficiaries of the trust after the grantor’s death. Ordinarily, the successor trustee and the beneficiary are the same people.
Living Trust Types
Living trusts come in different types, usually dependent on their capacity to be changed once initiated. In regards to this, there are two types of living trust forms.
- Irrevocable living trust – An Irrevocable living trust restricts the grantor from adjusting or making changes to it once they have set it in motion. It strips ownership of any property and assets listed in this type of trust from the owner, and it is to be treated as a separate entity from the grantor. As a result, an Irrevocable living trust customarily ought to have its own tax identification number (referred to as EIN), which can be obtained from the IRS online.
- Revocable living trust – A Revocable living trust, on the other hand, can be changed at the convenience of the grantor, and the grantor retains the ownership of any properties and assets listed in the trust. All benefits (capital gains) from the assets are paid to the grantor as personal income. Revocable living trusts are more common than irrevocable living trusts.
Irrevocable vs. Revocable Trust
As earlier stated, irrevocable and revocable living trusts are two distinct documents despite their shared utilization. To point out further variations, we shall look into how these two documents differ.
- Estate/Probate Taxes – In an irrevocable living trust, assets identified in the living trust are not taken as part of the grantor’s estate but as a separate independent entity. As a result, these assets are taxed independently from the grantor. Contrary to this, under a revocable living trust, the property listed is considered to be a part of the grantor’s estate. As a result, the listed property or assets’ taxes are billed to the grantor.
- Income Taxes – Through an irrevocable living trust, the trust is expected to pay its taxes either by the IRS Form 1041 or the grantor’s K-1 form (IRS Form 1065), meaning the grantor is not taxed jointly with his or her trust. However, since benefits from the trust are credited to the grantor’s account through a revocable living trust, the trust is taxed as personal income to the grantor and filed through IRS Form 1040.
- Liability – Through an irrevocable living trust, all assets and property listed are exempted from any litigation directed towards the grantor. The trust is also not liable for any debts or loans belonging to the grantor. However, with a revocable living trust, all assets outlined are liable to any lawsuits or creditors of the grantor.
- Medicaid (Nursing Home) – An irrevocable living trust restricts a nursing home from seizing the grantor’s assets only if they were listed in the trust five years before he or she was admitted to the nursing home. A revocable living trust does not protect the grantor’s assets from seizure by the nursing home.
- Modifications – Most states do not allow the modification, amendment, or termination of an irrevocable living trust, where else the same is allowed for a revocable living trust at the grantor’s convenience. For example, in the state of New York under § 7-1.9, a grantor can amend or terminate an irrevocable living trust if at all the beneficiaries are consulted and agree to the intended changes.
- Ownership – An irrevocable living trust irrevocably and permanently transfers ownership, control, and interest of a grantor’s assets to his or her heirs. However, with a revocable living trust, the assets are transferred to the trustee’s ownership, where the grantor, as the trustee, remains in control of the outlined assets.
- Trustee – The trustee holds the assets and property on behalf of the beneficiaries of the trust. Since they are separate entities from the grantor in an irrevocable living trust, the grantor cannot be the trustee. However, in a revocable living trust, the grantor can remain the trustee of the property owner, and the owner retains assets.
Understanding Living Will
Following are a few basic topics related to living will that may help in better understanding:
Living Trust vs. Living Will Testament
It is customary for people to confuse a living trust with a living will as both are used as estate planning options. However, a living trust and living will differ in several aspects, from utilization to circumstances under which they are used.
- Incapacitation – A living will becomes effective only after the grantor’s death, where else a living trust can also be executed once the grantor becomes incapacitated, that is, unable to make decisions and communicate their wishes in matters regarding their financial affairs. During incapacitation, there are two alternatives available for a grantor using a living will. One is the court has to appoint a representative to handle financial decisions on behalf of the grantor. The other is to include a Durable Power of Attorney used to assign an agent responsible for managing one’s assets in the living will.
- Minor children – A living trust does not allow the appointment of a caregiver for any minor children left behind after the death of the grantor. It is interpreted that any assets allocated to a child(ren) will automatically be transferred to the child’s(ren) parent or guardian. A living will, in contrast, allows the grantor to name their preferred guardian to look after their children.
- The probate process – Transfer of property and assets through a living trust is automatic; its execution does not involve or require any legal process or permission by the court. The successor trustee is solely responsible for distributing the assets to the heirs accordingly. A living will, conversely, is subjected to jurisdiction and legality. The court has to approve for transfer to occur, which means that State laws have to be followed before each beneficiary receives their share.
- Property – A living trust allows the successor trustee to transfer only the property that has been listed in it. In contrast, a living will is used to transfer all property belonging to the grantor to his or her heirs after death.
- Private vs. Public – Since property distributed through a living will have to go through the probate process, the living will itself becomes a case of public record. In contrast, a living trust is a privately held document whose existence is known by the parties involved only.
A living trust form will ordinarily outline different parties involved in transferring assets from the departed grantor to their beneficiary. Each party has its specific role, as discussed below.
- Beneficiary – A beneficiary is the named person or party that benefits from the property and assets listed by the grantor in the living trust by either acquiring ownership or receiving money generated upon the grantor’s death.
- Settlor – Alternatively referred to as the grantor, the individual uses a living trust form to set up a trust for his or her beneficiaries after they pass away.
- Trustee – A trustee is identified and authorized by the living trust to manage and be in charge of the grantor’s assets. They are permitted to buy, sell or make any other related decisions regarding managing the assets.
- Successor Trustee – A successor trustee is appointed to assume the trustee’s responsibilities only if the trustee cannot communicate or make decisions regarding the trust – death or incapacitation. A medical practitioner is usually required to ascertain through writing that such is the case before the successor trustee can take up the responsibilities. A successor trustee must be willing and capable of carrying out the laid out responsibilities and making decisions on behalf of the beneficiary.
Creating a Living Trust Form
Despite the technical nature of a living trust, anyone can create one for themselves through consultations with an estate planner. This is more preferred for small estates. Crafting a living trust is procedural, and below are some steps one can adopt in the quest to come up with an up to standard living trust.
Finding the property
The first step is identifying the assets and property the grantor wishes to have included in the trust. Property can be personal, real estate, or any other intangibles transferable. Examples include houses, cars, jewelry, stocks, insurance policies, etc.
The necessary paperwork related to the named property and assets should then be gathered. Documentation can include stock certificates, title deeds, etc. the value of the listed property should also be provided.
Choosing the receivers
The next step is to identify the beneficiaries. The names of the beneficiaries should be written in the living trust form to clearly show who will be receiving what after the death of the grantor. Beneficiaries can be family members, friends, or any other organization deemed worthy by the grantor.
Once the beneficiaries have been outlined, the trustees should be named. Ordinarily, a grantor will name themselves as the trustee to retain control over their assets unless it is an irrevocable living trust. The successor trustee who is meant to take over from the grantor should then be named. He or she is usually the beneficiary in most cases unless he or she is a minor. Due to the delicate nature of inheritance, someone trustworthy is recommended.
Composing the form
Once all the involved parties and assets have been determined, the information should be written down in the living trust form. The grantor should decide if they want a revocable or irrevocable living trust and get one that suits their needs. Living trust forms are available in different formats; Adobe PDF, open document text, or Microsoft Word. The grantor should then fill in the necessary information accordingly.
Signing the form
Once completed, a living trust form must be signed by the involved parties. Though not a requirement, a living trust should be notarized. Signing in the presence of a notary ascertains that the grantor signed the document willingly and of sound mind.
Storing a living trust
Original copies of the living trust must be kept safe as it is a document whose use will usually come sometime in the future. Each signatory (grantor, trustee, beneficiaries) should be issued a complete, signed, and notarized living trust. The document does not need to be registered at any government office.
Living Trust Revocation
As earlier stipulated, a revocable living trust can be terminated. Revocation is simply the act of reversing the transfers made through a living trust which can be prompted by a life-changing event such as divorce etc. Since it is a process, the first step should be to re-title or ascertain the property and assets initially listed in the living trust then transfer it back to the grantor. This will typically involve changing titles, deeds, certificates, and any other associated legal documents. Remember that property listed in a trust is technically not the grantor’s property but that of the trust. The next step should be to fill a revocation of living trust (also known as a trust revocation declaration) form which should be signed and dated. Revocation is completed after the signing in the presence of a notary public. In the event that the living trust was registered with a court, the revocation declaration should be filed with the same court. Transfer of assets back to the grantor includes all property, money, and accumulated income generated from the trust estate.
A pour-over will be used when individuals want to avoid the probate process using a revocable living trust. The pour-over will dictate that any assets that fall under it after the grantor’s death be transferred (poured into) to the trust, after which they can be distributed to the beneficiaries as directed by the trust. A pour-over will have the following advantages;
- It ensures a single document governs the estate – the living trust and as a result, estate planning becomes more straightforward and quicker.
- It ensures private possessions go to the rightful heirs away from pubic scrutiny, for it being part of a living trust, it does not become a matter of public record upon the death of a grantor.
- It captures all of the property that was not transferred to the living trust before the grantor’s death and makes sure it is distributed to the rightful beneficiaries.
A pour-over distinctively identifies the living trust and should be effected before or at the same time the living trust is being executed. It should also be consistent and must not contain any conflicting or contradictory jargon compared to that stipulated in the living trust. A pour-over will name the trustee who is to serve as its executor. The executor transfers the assets NOT to the beneficiaries but the trust.
Different states will have distinct laws that govern the probate process. Below are some of these laws.
Frequently Asked Questions
After the death of a grantor, the beneficiaries are to attain ownership of his or her assets as well as any benefits generated from the trust. However, as long as the grantor is alive, the grantor’s assets and income are credited.
The registration of a living trust is dependent on the specific laws of a given state. For example, it must be registered in Florida, Idaho, Alaska, Nebraska, North Dakota, Michigan, Colorado, and Missouri. This requirement is applicable provided if at all not all of the grantor’s property is distributed before his death.