Planning Your Living Trust | Legal Form Articles

A Living Trust is the cornerstone of any comprehensive arrangement to plan for the distribution of your property upon your death. In this guide, the basic qualifications for having a Living Trust are outlined. Various other estate planning tools which may be useful in certain situations are also detailed. Finally, an overview of the steps you will take in preparing your own Living Trust is presented.

Qualifications for Having a Living Trust

Are you legally qualified to have a Living Trust? In general, if you are over 18 years of age and of “sound mind,” you will qualify.

The requirement to have a “sound mind” refers to the ability to understand the following:

That you are signing a Living Trust
That you know who your beneficiaries are
That you understand the nature and extent of your assets

Having a “sound mind” refers only to the moment when you actually execute (sign) the Living Trust. A person who is suffering from a mental illness, a person who uses drugs or alcohol, or even a person who is senile may legally sign a Living Trust. This is acceptable as long as the Living Trust is signed and understood during a period when the person is lucid and has sufficient mental ability to understand the extent of his or her property, who is to receive that property, and that it is a Living Trust that is being signed.

The fact that a person has a physical incapacity makes no difference in his or her right to sign a Living Trust. Regardless if a person is blind, deaf, cannot speak, is physically very weak, or is illiterate; as long as they understand what it is they are doing and what they are signing, the “sound mind” requirement is met.

Related to the requirement that the Grantor have a “sound mind” at the time of signing the Living Trust is the requirement that the Living Trust be signed without any undue influence, fraud, or domination by others. In other words, the Living Trust must be freely signed and reflect the wishes of the person signing it for it to be legally valid. You do not ever have to sign a Living Trust that is not exactly what you desire. Do not let anyone coerce or force you to sign a Living Trust that does not accurately reflect your own personal wishes. If you are in a situation of this nature, it is highly recommended that you immediately seek the assistance of a competent lawyer.

Other Estate Planning Tools

The use of a Living Trust is one of the most popular and widespread legal tools for planning for the distribution of your estate. Your estate consists of everything that you own, whether it is real estate or personal property. As explained in another article on our site (“Why Do You Need a Living Trust?“), through the use of a Living Trust you can accomplish the planned distribution of your estate property and many other goals. However, there may be other objectives in your planning that cannot be accomplished solely through the use of a Living Trust. Other estate planning documents may be necessary to achieve all of your goals.

There are three basic reasons that other estate planning tools may be useful in certain situations: avoidance of probate, reducing taxes, and health care considerations.

First, many people desire to avoid having their property be subject to probate proceedings. The drawbacks of probate are that it can delay the distribution of your property while the probate process continues. The probate of an estate can take, generally, from four to 18 months, and sometimes much longer. Additionally, probate costs can be substantial. Court costs, appraisal fees, lawyer’s fees, and accounting bills can all cut deeply into the amount of property and funds that will eventually be distributed to your beneficiaries. However, for small estates (generally, under $100,000.00), most states have simplified probate procedures which can be handled without lawyers and can substantially reduce these costs.

There are various methods for avoiding having property pass to others through the probate process. The three most important are as follows:

Joint Tenancy with Right of Survivorship

Upon one owner’s death, any property held as joint tenants with right of survivorship passes automatically to the surviving owner without probate or court intervention of any kind. Under the laws of most states, the description of ownership on the deed or other title document must specifically state that the property is being held by the people as “joint tenants with right of survivorship.” If not, the property is usually presumed to be held as “tenants-in-common,” which means that each owner owns a certain specific share of the property which they may leave by way of a Living Trust or other estate planning device, such as a will. Some states have another class of property known as “tenancy-by-the-entirety” which is, essentially, a joint tenancy specifically for spouses.

Life Insurance

Another common method of passing funds to a person on death while avoiding probate is through the use of life insurance. By making the premium payments throughout your life, you are accumulating assets for distribution on your death. The life insurance benefits are paid directly to your chosen beneficiaries without probate court intervention. However, life insurance benefits are still considered part of your taxable estate.

To obtain more information on insurance, you are advised to consult an insurance professional.

Payable-on-Death Bank Accounts

This type of property ownership consists of a bank account held in trust for a named beneficiary. It may also be referred to as a “Totten” trust or “Bank” trust account. It is a very simple method for providing that the assets in a bank account are paid immediately to a beneficiary on your death without the beneficiary having any control over the account during your life, as is the case with a joint bank account. This trust-type bank account allows for the property to be transferred without probate and is very simple to set up. Any type of bank account, whether checking, savings, money market, or even certificates of deposit, may be designated as a payable-on-death account by filling out simple forms at your financial institution.

The second major use for estate planning tools is to attempt to lessen or completely avoid the payment of any taxes on the transfer of property upon death. Upon death, the transfer of property may be subject to federal estate taxes, state estate taxes, and state inheritance taxes. However, much of the taxation of estates (most importantly, federal taxation) does not become a factor unless your estate is valued at over $1 million. Thus, for most people, the need to pursue complicated tax avoidance estate plans is unnecessary. For reference however, some details regarding taxation of estates are provided in our Property Questionnaire (included in all of our Living Trust Kits). The complexity of tax laws and the methods to avoid taxes through estate planning is beyond the scope of this discussion. If your estate is over $1 million, it may be wise to seek the assistance of a tax professional.

The third main purpose of estate planning is a relatively new concern. Recent advances in medical technology have allowed modern medicine in many cases, to significantly extend the lives of many people. In addition, many people have become aware of the possibility of their lives being continued indefinitely through technological life-support procedures. Two legal documents have been developed to deal with these concerns: the Living Will and Durable Power of Attorney for Health Care.

Living Will

A living will is a document that can be used to state your desire that extraordinary life-support means not be used to artificially prolong your life in the event that you are stricken with a terminal disease or injury. Its use has been recognized in the vast majority of states in recent years.

Durable Power of Attorney for Health Care

A relatively new legal document, a Durable Power of Attorney for Health Care allows a person to appoint another person to handle all their health care affairs in the event that he or she becomes incapacitated or incompetent. Generally, this document will only take effect upon a person becoming unable to manage his or her own affairs. This type of document may be used to delegate the legal authority to make health care decisions to another person. This document may be carefully tailored to fit your needs and concerns and may be used in conjunction with a living will. It can be a valuable tool for dealing with difficult health care situations.

Regardless of what types of estate planning tools you eventually decide are appropriate in your situation, the Living Trust and the will are necessary complements to any successful estate plan. If you believe that your situation warrants additional estate planning, please consult an experienced financial planner, tax professional, or attorney. You may, of course, also wish to research and prepare any of the above documents yourself without the aid of an attorney or accountant.

Steps in Preparing Your Living Trust

There are several steps that must be followed to properly prepare your Living Trust using our forms. None of them are very difficult or overly complicated. However, they must be done carefully in order to effectively accomplish what you set out to do: be assured that your property is left to those loved ones whom you choose and that your loved ones are properly cared for after your death.

What follows is a brief outline of the necessary steps which must be followed to prepare a valid Living Trust using our forms. You will probably refer back to this guide several times in the course of preparing your own Living Trust to be certain that you are on the right track and have not left out any steps.

1. Read through all of the pertinent forms. You are advised to read carefully through all of our pertinent forms and guides before you actually begin preparing your own Living Trust. By doing this you will gain an overview of the entire process and will have a much better idea of where you are heading before you actually begin the preparation of your Living Trust.

2. Fill in the Property Questionnaire and the Beneficiary Questionnaire (available in all Living Trust Kits). These questionnaires are designed to compile all of the necessary personal information for your Living Trust preparation. Information regarding your personal and business assets, percentages of ownership of these assets, marital relationship, names and addresses of relatives, and many other items will be gathered together in these questionnaires for your use. As you fill in these questionnaires, you will begin making the actual decisions regarding distribution of your assets. In addition, you should fill out a Successor Trustee Information List (available in all Living Trust Kits) which will provide important data for use by your chosen Successor Trustee.

3. Review your own state’s legal requirements as contained in the State Law Digest. The State Law Digest contains a concise listing of the laws relating to Living Trusts in every state. Although the standard Living Trust clauses used in our forms will alleviate most of the concerns raised by these legal requirements, there may be certain of your own state’s requirements that will affect how you decide to prepare your own Living Trust.

4. Decide which Living Trust Kits most clearly fits your needs. The Living Trust are, for the most part, self-explanatory and you should be able to easily decide which one applies to your situation.

5. Complete your chosen Living Trust form. Using your Property and Beneficiary Questionnaires, fill in the appropriate information on your chosen Living Trust form.

6. Proofread your entire Living Trust very carefully to be certain that it is exactly what you want. Make sure that there no typographical errors, and that all provisions are written exactly how you want.

7. Take your completed Living Trust before a notary public and formally sign your Living Trust in front of him or her. This is known as the execution of your Living Trust.

8. Make a photocopy of your original, signed Living Trust and give it to the Successor Trustee whom you have named in your Living Trust. You may also wish to give the Successor Trustee a copy of your Successor Trustee Information List. Store the original of your Living Trust in a safe place.

9. Review your Living Trust periodically and amend or revoke your Living Trust if necessary. To purchase Living Trust Amendment Kits and Living Trust Revocation Kits, please visit our website at www.findlegalforms.com, or click the appropriate links above.

10. Prepare and execute a will to supplement the use of your Living Trust.

That’s all there is to it. Actually, that may sound like a lot of work and bother, but realize that you would have to follow many of the same steps even if a lawyer were to prepare your Living Trust. However, in that case, you would give the lawyer all of the information and he or she would simply prepare a Living Trust in much the same fashion that you will use with our forms and guides. The difference, of course, is that you must pay an often exorbitant price to have this done by a lawyer. Additionally, by preparing your Living Trust yourself and doing so at your own pace, you are certain to take more care and give more thought to the entire process than if you have someone else prepare it for you.

Living Trust Preparation Checklist

Read all pertinent forms and guides pertaining to Living Trusts
Choose the appropriate Living Trust
Fill in the Property and Beneficiary Questionnaires
Review your state’s legal requirements
Fill-in and complete your Living Trust
Carefully proofread your Living Trust
Go before a notary public and sign your Living Trust
Give a copy of your Living Trust to your Successor Trustee and safeguard the original
Review your Living Trust periodically and make any changes in a formal manner
Prepare and execute a will to supplement your Living Trust

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