Last Reviewed: Mon, Sep 14, 2020
What is a Living Trust?
A living trust is a legal document that holds property transferred by someone, called the Grantor, for the benefit of someone, called the beneficiary, that will be managed by someone, called the Trustee. The Grantor, beneficiary, and Trustee of a typical living trust are all the same people because the primary purpose of a living trust is to manage a person's assets for them during their lifetime, and allow them to pass that property to their surviving spouse, or children, without having to go through a court-supervised process, called probate.
During the Grantor's lifetime, the assets held in the living trust, often their house, their investment accounts and their larger bank accounts, can be used for that person's benefit in exactly the same way that the person was able to use those assets before they were placed in the trust. But, at their death, the trust agreement will dictate what happens next, distributing the trust's property as directed by the document.
Because the assets that have been transferred into the trust are legally owned by the trust (and not by the person who contributed those assets), the Grantor's estate will not have to go through probate because it will fall under a state's small estates limit, if their biggest assets are held in the trust and only a few, small assets are held in their individual names. Just having a living trust, though, isn't going to prevent a probate if the Grantor forgot to actually put their biggest assets (house, brokerage accounts, and so on) into the trust. It's entirely possible for someone to create a trust, ignore it for the next thirty years, and die with all of the major assets held in their own names, and not in the name of the trust. In that case, a probate will be required before any of that person's assets can be distributed to their beneficiaries.
For example, if a person whose home, brokerage account, and savings account had been transferred into their living trust, dies, only those assets that they held in their own, individual name would count towards their state's small estates limit for probate. If all that they owned outside of the trust consisted of their car, with a Blue Book value of $3000, a checking account with $ 4,000, and their household possessions, their estate would not be subject to probate and could be distributed to their beneficiaries without a court order and without the cost and delay of probate. However, if that same person never transferred their home, their brokerage account or that savings account into the trust, all of those assets would have to go through probate before they could be transferred to the trust's beneficiaries.
Is a Trust Registered or Stored Somewhere?
After someone dies, the family needs to locate that person's estate planning documents. Much to many peoples' surprise, there's no official state registry for this kind of thing where people send in their important documents before they die. Instead, people keep their Wills and trusts in safe places -- sometimes in a safe deposit box at the bank, sometimes in a fireproof safe or cabinet at home, and sometimes just in a special box or drawer at home.
If you are not certain where such documents are located, you just have to keep looking until you find them. If you can't find them, you may finally conclude that they just don't exist. If that's the case, then the person will have died intestate, which means that state law determines who inherits their property.
If you're not certain whether or not such documents exist, then you've got more of a detective project on your hands. There's no external thing you can find that will tell you for certain that a Will exists--you either find one or you don't. But in the case of a living trust, your clue to the existence of a trust will be account statements or property deeds that show the ownership of the account to be something like this, "Nila Smatherton, as Trustee of the Nila Smatherton Trust." If you find assets that are held by a trust, you'll need to locate the trust document to be able to transfer them. If you do find the trust document, your next step is to read it. If you ultimately cannot find the trust document, you'll need to work with a local estate planning attorney to transfer the assets via a court order. Here's a link to your local probate court.
What to Look For When Reading the Trust
Here's what you need to figure out when reading a trust:
- Who is named to serve as successor Trustee? This is the person with the legal responsibility to distribute the trust's assets as directed by the trust document.
- Who are the trust beneficiaries? These are the people who will receive the trust's assets.
- How are the beneficiaries supposed to receive their assets? Often, trusts will distribute assets to adult beneficiaries "outright and free of trust", which is lawyer-speak for giving those assets directly to them, with no strings attached. Children, or adults with special needs or issues managing money, will often be given assets to be held in trust to a certain age (like 30) or, perhaps, for their entire lifetimes.
- What assets are owned by the trust? As asset has to legally transferred to a trust for that trust to be its legal owner. To determine what the trust owns, you'll be looking for deeds and account statements that show ownership like this, "John Doe, as Trustee of the John Doe Family Trust."
- Was the Trust signed and notarized? An unsigned trust, or one that wasn't properly notarized is not legally valid.
- Are there any Trust Amendments? A trust amendment changes a section of a previously signed trust.
To settle an estate that's held in a living trust, there are a series of steps that the Trustee will need to take. The beneficiaries and heirs will need to be notified of the death of the Grantor; the trust's assets will need to be identified and valued, the decedent's debts and expenses will have to be paid, the trust will need a tax identification number, a trust tax return may need to be filed, and, in the end, the trust's assets will need to be distributed to the beneficiaries.