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How Does a Living Trust Work?

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Funding the Trust – When a living trust is created, the individual that owns the belongings (the grantor) delivers the ownership of the assets to the trust itself.

Imagine owning an investment property. With a living trust, you can transfer ownership by updating the property deed. The trust becomes the new owner.

You can do the same with vehicle titles, financial records, and other items by placing them in the trust’s name. This process, called “funding the trust,” creates a trust fund.

The grantor designates a trustee in the trust papers to ensure adherence to the trust contract. The trustee can be a family member or a professional from a financial institution.

Using the trust fund, the grantor can leave a full inheritance to beneficiaries. Specific terms may be set, such as a grandchild graduating before inheriting a car.

Living Trust Types

Keep reading to find out more about the 2 types of living trusts: revocable trusts and irrevocable trusts.

Revocable Trust

Revocable trusts are by far the most customary type of living trust. To such an extent that people call it simply “a living trust,” or “a living revocable trust.” As the name suggests, a revocable trust may be modified or revoked (annulled) by the grantor at their discretion. Undertaking this is not a fast job, but it can be accomplished, making it an adaptable option.

Irrevocable Trust

An irrevocable trust cannot be changed, even by the grantor, without a judge’s approval and significant conditions. In contrast, a revocable trust provides more flexibility. Many people choose a revocable trust initially and later convert it to an irrevocable trust when more certainty is achieved.

Moreover, it is essential to understand that when the grantor passes away, a revocable trust automatically becomes irrevocable, as the only person with the authority to modify it has died.

Living Trust Benefits

A living trust might have some benefits for you over other ways to handle your estate. Here some of the benefits:

  1. Time and money saver in the probate process – A living trust designates a trustee that can without delay take care of your end of life matters—such as paying funeral fees and allocating property to your heirs—devoid of having to wait for a probate judge. Less wait time means reduced probate fees and more savings.
  2. Provides more Protection When challenged – Your living trust is not as likely to be challenged in a court than a straightforward will. It’s more difficult for the challengers, since they are required to substantiate that you were forced into signing the papers and coerced in going through the entire process of funding the trust.
  3. Protects privacy more – Since a will is public documentation, anyone can obtain a copy of it following your passing from the county records. However, a living trust is entirely private. With a trust, no one will know the specifics unless the trustee shares that information.
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