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An Introduction to Living
Trusts - a popular way to avoid probate
1. What is a Living Trust?
A trust, like a corporation, is an entity that exists only on paper but is legally capable
of owning property. A flesh-and-blood person, however, must actually be in charge of the
property; that person is called the trustee. You can be the trustee of your own living
trust, keeping full control over all property legally owned by the trust.
There are many kinds of trusts. A "living trust" (also called an "inter
vivos" trust by lawyers who can't give up Latin) is simply a trust you create while
you're alive, rather than one that is created at your death under the terms of your will.
All living trusts are designed to avoid probate. Some also help you reduce estate taxes,
and others let you set up long-term property management. For more details, see How Living Trusts Work.
2. Why do I need a living trust?
If you don't take steps to avoid probate, after your death your property will probably
have to detour through probate court before it reaches the people you want to inherit it.
In a nutshell, probate is the court-supervised process of paying your debts and
distributing your property to the people who inherit it.
The average probate drags on for months before the inheritors get anything. And by that
time, there's less for them to get: in many cases, about 5% of the property has been eaten
up by lawyer and court fees. The exact amount depends on state law and the rates of the
lawyer hired by the executor. (For more information see Why Avoid Probate?.)
Still, not everyone has to worry about probate, and some people don't need a living trust
at all. For help deciding, see You May Not Need a Living
Trust.
3. If I make a living trust, do I still need a will?
Yes you do--and here's why:
A will is an essential back-up device for property that you don't transfer to your living
trust. For example, if you acquire property shortly before you die, you may not think to
transfer ownership of it to your trust--which means that it won't pass under the terms of
the trust document. But in your back-up will, you can include a clause that names someone
to get any property that you don't leave to a particular person or entity.
If you don't have a will, any property that isn't transferred by your living trust or
other probate avoidance device (such as joint tenancy) will go to your closest relatives
in an order determined by state law. These laws may not distribute property in the way you
would have chosen.
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