How does a Living Trust Work?
When you set up a living trust, you are the “settlor” of the trust, or “person who created the trust”. A Living Trust is simply a legal document in which you, as settlor, transfer your assets to a trustee. You can name yourself as trustee. As trustee, you hold and manage the property for your benefit according to your instructions. The office of Trustee is like the office of President of the United States. If the President resigns, becomes incapacitated or dies, the Vice-president becomes President automatically.
If you resign, become incapacitated or die, your successor trustee becomes trustee. If you become incapacitated, the successor trustee you have chosen takes over and continues to manage for your benefit, avoiding a conservatorship (living probate). Upon your death, the beneficiaries you have named receive the trust property. Most Living Trusts are amendable and revocable. This means you, the Settlor, can change the trust any time and even cancel it.
Living Trusts avoid probate and conservatorship proceedings. A Living Trust also allows you to restrict when a beneficiary receives their inheritance, such as when they reach the age of 21, 25, or any age you select. Until that age, the trustee controls the investment of the beneficiary’s share and distributes it for that person’s health and education.
Married couples often set up one trust that provides for the surviving spouse upon the death of the first spouse. Upon the death of the surviving spouse, the trust provides for the married couple’s beneficiaries.
