If Steven Covey, author of bestseller “The 7 Habits of Highly Effective People,” were to decide where in his quadrants to place a living trust, we’re fairly confident that it would go in the Important but not Urgent one. It’s one of those very important things in life that we all keep putting off. If you’re reading this article, congratulations: you have more than likely already decided to move forward with creating one. Here’s what to include in it.
1. Are you married or in a domestic partnership?
Do you have children together? Do you own all, or most, of your property with your spouse or domestic partner? If any of these scenarios apply to you, a shared trust might be the right approach. It’s a personal decision. You are not required to have a joint trust just because you are married or in a domestic partnership. Your other choice is two individual trusts.
2. What gets transferred to your living trust?
It isn’t necessary to transfer all your assets to your living trust, but sometimes it’s best.
- Bank accounts, for example, can be transferred via the “pay upon death” clause of your bank account itself, but this option is not helpful at all if you become disabled and are unable to manage your affairs. Your successor trustee can only take over on managing assets that have been transferred to the trust. Therefore, if you opt to not transfer your bank accounts to your trust, be sure to have a power of attorney that your “pay upon death” beneficiary can use to access your account in the event you become disabled. Note that, to be valid, the power of attorney has to be created before you become disabled.
- Life insurance policies on the other hand do not benefit in any way by being transferred to your trust; the proceeds already automatically go to the beneficiaries.
- The property you should transfer is that which would go through probate were it not in your trust, such as a house, art collections, jewelry, high-end household items and furniture, etc.
- You can also transfer car titles to your living trust, though in this case, the department of motor vehicles in most states have their own form which can be signed and left with the trust documents so that the person to whom you will the car can simply change the title to their own name. If you opt for this option, be sure your title is under lock and key after you sign it as anyone can then simply add their name and get the title transferred to them. If you are certain to whom you wish to will the vehicle, it’s probably best to enter their name(s) on the title as the assignee at the same time you sign it. This will avoid someone whom you do not wish to give the car to adding their own name instead.
- Any account with a value over $25,000 would be best transferred to your trust, as the probate threshold is $25,000 (any estate or account above this amount goes through probate)
- If you wish to make a charity a full or partial beneficiary, remember to be specific as to exactly which charity you mean. For instance, state United Way of Southern Nevada, and not just United Way. Otherwise, the funds will go to the United Way agency and not its Southern Nevada chapter.
3. Who will administer the trust after your demise or if you become incapacitated?
The person who sets up a living trust is known as the Initial Trustee, or just Trustee. In your trust, you name a Successor Trustee. This is the person who will take over from you once you are no longer able to manage the trust. Many people name their children, a close relative, or a close friend. Alternatively, if no such person is available, you can name an institution, such as your bank (discuss with your banker first). Whoever this individual is, be sure that you trust him or her to distribute your property to your beneficiaries according to your wishes. When you’ve made your selection, discuss your living trust with him or her. You might want this individual to succeed you as the manager of your trust, but is he or she willing to take on this responsibility?
4. What you add to the Pour-over Will and not the trust
A good living trust attorney will usually include a Pour-over Will in a living trust package.
- You name a guardian for your minor children in this document. Though a guardian can be named in the trust, it’s best to keep that for your will. A trust is a legal entity for holding property and passing on instructions, and just like you wouldn’t name a guardian for a corporation, you shouldn’t name one in the trust either.
- This same guardian can also manage the property that your children will receive once they become adults, or you can name someone else entirely. Once again, this should be someone you trust implicitly to follow your wishes as he or she will have a lot of power over your children and the property you wish to pass on to them.
- Your burial instructions also go in the will and not the trust. You state your wishes as to whether to be buried or cremated here too.
- A good will should have a clause that bequeaths any and all property you have not had the opportunity to transfer to your trust before your demise to your trust. This will go through probate, but the process will be highly expedited because it all goes to one place.
5. Signing your trust
Once your trust has been created and you have reviewed it with your attorney, it’s time to execute it, which simply means that you sign it in front of a notary. In addition to the notary, you will need two witnesses. If you are signing your trust at your attorney’s office, he or she will usually have witnesses available for you.
6. Transfer property to your trust
This is a crucial step that, regrettably, some individuals never take. For a trust to mean anything at all, it must be funded. Any houses you own must be quit-claimed to the trust, any bank accounts (if you decided to include them in the trust as discussed earlier), the title to any collector cars or other cars, etc. We have a whole other article on exactly what to do after your trust has been created. A living trust that hasn’t been funded is essentially worthless.
7. Store your trust documents in safe place
Be sure that your successor trustee and your beneficiaries all have a copy of your trust. The original should be kept in your safe and its location should be known to your successor.