A living trust — also sometimes called a revocable living trust — is a good estate planning tool for some people. Before you decide whether a living trust should be part of your estate plan, take the time to understand how a Maryland living trust works and what it takes to set one up. The trust and the process are both somewhat complicated.
Before we explain living trusts, a word of caution is essential. As the popularity of living trusts has grown in recent years, so have the opportunities to create a Do-It-Yourself (DIY) living trust online. A living trust is not the right estate planning tool for everyone. Creating one on your own without assistance from an experienced estate planning attorney is full of risks with potentially disastrous consequences.
Located in Rockville, Maryland, the Law Office of Henry Nash provides estate planning legal services to clients in Montgomery County and throughout Maryland. We welcome inquiries about living trusts and all other matters relating to your estate planning needs and goals.
A trust is a legal arrangement created by a written document. The grantor or settlor is the person who creates a trust. Under authority granted the trust document, the designated trustee holds, manages, and distributes trust assets. The beneficiary or beneficiaries of the trust receive the distributions.
There are many different types of trusts, each of which serves a specific purpose. A living trust is one created by the grantor during his or her lifetime. The term inter vivos trust (Latin for “between the living”) also applies to living trusts.
In a living trust, the grantor also is the beneficiary of the trust during his or her lifetime. Frequently, the grantor also is the trustee, although some living trusts have professional trustees to manage them.
The trust document itself establishes all the terms of a living trust. Generally, a living trust provides that the assets will be used for the grantor’s benefit during his or her lifetime. The trust document also specifies what happens to the trust assets if the grantor/beneficiary becomes incapacitated or dies.
Creating a living trust involves more than just making and executing a document to satisfy specific requirements. The document creates the trust. But the trust is not in operation until the grantor transfers assets into the trust.
For property with ownership evidenced by title documents (like real estate, automobiles, securities, and other assets), the grantor must create and execute new title documents to transfer assets into the trust. For monetary assets like bank accounts, the assets themselves must be transferred into the trust.
Making the determination whether you should have a Maryland living trust is a process that takes a number of different factors into account. One essential consideration involves ensuring that you fully understand exactly how a living trust works and what is necessary to set the trust up and operate it.
Creating a living trust avoids probate of the assets in the trust, which maintains privacy for the estate. This characteristic is an important reason that some individuals create living trusts.
A common misunderstanding about living trusts involves taxation. While a living trust does avoid probate, it does not avoid tax liability for the individual or the estate.
Considerations that enter into the decision include an evaluation of your unique financial, personal, and family circumstances. The factors to weigh include your needs and goals, your family’s needs, the type and location of your assets, and your family dynamic.
A living trust may be a viable option for inclusion in your estate plan in situations where you need or want to:
The only way to determine whether a living trust is right for your estate plan is discussing all these factors and your specific circumstances with a knowledgeable Maryland estate planning lawyer. Many legal considerations enter into deciding whether you should create a living trust. You should not try to make that evaluation on your own without qualified professional assistance.
Typically, a living trust is revocable during the grantor’s lifetime. The grantor also has the freedom to move assets in and out of the trust. However, making changes within the trust can impact other parts of your estate plan.
The trust document itself specifies what happens to the trust assets on the grantor’s death. Several different options are available. For example, the assets could be distributed to beneficiaries or transferred into a different type of trust for the beneficiaries. Which option is best depends entirely on the grantor’s unique circumstances. Your attorney will help you decide what’s best in your situation.
Generally, creating a living trust does not mean that you do not need any other estate planning documents. A sound estate plan also generally includes a will (for assets that are not in the trust) and other documents necessary to protect you during your lifetime.
Finally, it is important to remember that even if you execute a document creating a living trust, you must take significant additional steps to fund the trust. Depending on your situation, that may include changing property titles, checking insurance coverage and mortgage terms for real estate, and transferring assets from banks, brokerages, and other financial institutions and more. Your attorney will ensure that you take all steps necessary to finalize your trust, and be available to answer your questions after the trust becomes operational.
Attorney Henry Nash has extensive experience helping clients create an estate plan that fits their individual and unique circumstances. At The Law Office of Henry Nash, we work with clients in Rockville, throughout Montgomery County, and elsewhere in Maryland.