A Brief Introduction About the Living Trust
A Living Trust is a legal document that can be used as a financial instrument, wherein it can be used in order to assign a particular individual the duty and the right of managing one’s assets during his or her lifetime. The person, individual, and or company who is assigned the task of managing the assets is known as the trustee. The basic idea behind the creation of a living trust is to bypass the complex legalities of probate and allow for the easy, smooth and efficient transfer of funds from the settler’s and or trust creator’s account to that of the beneficiary.
The trustee who is chosen to safeguard and look over the funds and assets of the trust creator is often given the legal right to determine their state and at the designated time and date hand them over to the beneficiary.
Who Takes the Living Trust – People Involved
In the creation of a Living Trust, there are usually two parties involved. The first party is the trust creator whose assets and funds will be deposited and or transferred to the trust fund. The second party is the person, individual, company, and or organization who is designated and or chosen to manage the funds and assets of the trust fund. In legal terminology, the first party is known as the Trust Owner, the second party is known as the Trustee, and the legal document is simply referred to as a Living Trust.
In most, there can be more parties in the creation of a Living Trust, but these are mostly in the form of beneficiaries, who will inherit the funds and assets as per the rules and regulations outlined in the trust.
Purpose of the Living Trust – Why Do You Need It
The main purpose of this agreement is to establish a legal understanding between both the organizations and to make sure that the interests of the individual parties along with the collective are protected at all points in time.
Some of the essential aspects to note about a Living Trust are the following:
One of the most important aspects worth understanding about a Living Trust is the fact that there are 2 types of Living Trusts. The first type of Living Trust is an irrevocable trust and, the second type of Living Trust is known as a revocable Living Trust. In the case of a revocable trust, the trust settlor can designate himself or herself as the trustee and take full control of the assets and funds that have been designated for the trust fund.
In the context of an irrevocable trust owner and or settler reserves, only a couple of rights when it comes to the operation of the trust fund. The designated trustee assigns full control of the trust and becomes the legal owner of the trust funds and assets. One of the most interesting aspects worth noting about an irrevocable living trust is the fact that once it has been decided upon and signed, the trustee has been assigned and the beneficiaries have been chosen, the settlor and or the trust owner can do very little in terms of changing its contents.
In the context of a revocable trust, as mentioned above, the trust settlor has the legal right to declare himself or herself as the trustee. However, in this case, the individual tax of the trust settler is not reduced, and he or she will still need to pay a certain amount of estate tax. The trust settlor and or the owner also reserves the right to change the contents of the amendment even after it has been created and signed. The settlor can change the trustee, the beneficiaries, as well as the amount of beneficiaries that will be inherited by each and every party.
Another striking aspect of a Living Trust which vastly differentiates it from other types of beneficiary trusts is the fact that it can itself be declared to be a beneficiary of all the funds and assets that are there in the living trust. In this scenario, the inheritance won’t flow to the beneficiaries mentioned in the agreement, but to the trust itself. The usage of these funds will already be pre decided and mentioned in a particular section of the trust agreement.
Some other forms of Living Trusts can be individual retirement accounts (IRAs), life insurance policies, and certain bank accounts such as Payable on Death (POD) accounts. Living trusts can include accounts held in trust, which are created during the settlor’s lifetime and are not established upon death as designated in a last will and testament.
Contents of the Living Trust – Inclusion
- Parties Involved: In this legal agreement, there are usually two parties involved; the first being the owner and or creator of the trust and the second being the individual, person and or organization who has been chosen to represent, protect and safeguard the assets of the trust fund. In legal terminology, the first party is known as the trust creator and or owner, the second party is known as the trustee, and the agreement is simply referred to as the Living Trust.
- Effective Date: This section of the agreement outlines the date from which this contract will stand legally binding and also the date on which the same can be dissolved.
- Where does it Apply: This agreement is legally applicable within the boundaries of the state, city, or county where it was originally drawn at.
How to Draft the Living Trust
A Living Trust can be drafted by simply following the steps mentioned below.
Organize a meeting both the parties and discuss upon the terms and conditions of the agreement, such as the amount of funds and assets that will be deposited into the trust fund, how the funds will be deposited, the tenure for which the funds will be held in the trust fund, the chosen trustee who will be the legal owner and prosecutor of the funds, the beneficiaries who will inherit the funds and most importantly how much each of the chosen beneficiaries will inherit from the trust fund.
Once both the parties have mutually agreed to all the terms and conditions, reach out to a lawyer and ask him to draw up a Living Trust according to the specifications discussed.
Get both the parties to sign the contract and get it registered in a house of law as suggested by your lawyers.
While negotiating the formation of a Living Trust, it must be taken care that the individual interests of both parties must be addressed along with the collective cause.
Benefits of the Living Trust
The most significant benefits of having a Living Trust are as follows.
- The contract clearly outlines the individual responsibilities, duties, and limitations and therefore makes sure that both parties are well aware of them at all points in time.
- This is document acts as legal proof and thus can be produced in court if there is a need in the future.
- In the absence of a Living Trust, neither of the parties have legal proof of an understanding taking place between two entities, and thus if the matter is ever brought to court, both parties stand to lose.
What Happens in Case of Violation
In the case of violation of a Living Trust, certain remedies come into effect, and in a few cases the contract is dissolved, and a new set of terms and conditions are agreed upon.
A dispute in the case of a trust fund is although rare can sometimes crop up due to individual disputes between the beneficiaries(1). In these scenarios, little can be done by outside counsel, and thus the contents of the agreement are strictly followed. The mutually decided amount is dispersed to the beneficiaries, and the rest is kept in the fund itself to be used as previously decided in the contents of the same.
The purpose of a Living Trust is to bypass the legal complexities that come with financial instruments such as probate among others(2). The contents of the same are mutually decided among all the involved parties, and thus once the stipulated date is reached, the funds are distributed without much hassle.
The presence of a Living Trust is to minimize risk and hassle and at the same time, increase efficiency at all times, and it has always proved to have done so.