The Basics of Living Trusts

There are two distinct legal vehicles that allow property owners to transfer real estate and personal property before death. For many homeowners, avoiding probate is very important because the assets of small to medium estates can easily be depleted if forced into probate. Those two legal vehicles are a life estate, and a living trust. Each has its advantages and limitations. If the only consideration is transferring your home to your children or another beneficiary upon your death, the best option is a life estate.

In a life estate, generally – and it is different in various states – all you need do is prepare a deed transferring the property to your beneficiary, with reserving for yourself and your spouse, a life estate in the property. The value of this type of transaction is that no probate or other legal action is required to put the property into the hands of your beneficiary upon your death. One option that some homeowners will want to consider is asking the beneficiary of the life estate for a signed and notarized “deed back” in the event you need to sell the property before your death. If the “deed back” is not recorded, it has no effect and the life estate transfer kicks in as planned.

The second option – creating a living trust – is more expensive and more complicated. However, it also offers advantages and options not available when using a life estate. A living will permits you to transfer not only real estate, but other types of assets to your children or other beneficiaries before your death so that you know your wishes are carried out.

Compared to a will, a living trust takes place as soon as it is created, while a will is executed by probate court after your death. Also, as with the life estate, the living trust avoids probate because the assets have already been transferred to the trustee for the benefit of your beneficiary. For the living trust to become effective, however, the grantor – the person preparing the trust – must actually transfer the property, whether its real estate, bank accounts, stocks or other personal or real property – to the trustee. Mature adults should remember that upon death, all of your assets will be distributed to someone, in some manner.

You have 3 Choices… To do it yourself before your death; Arrange for it to be done upon your death; allow the courts & state to do it.

Remember, that even when you prepare a will clearly stating your wishes, if that will must be probated not only your property, but your “wishes” stated in the will are in the hands of the probate court.