What Is A Living Trust? And How It Is Formed?

We all have often heard the term living trust but have fairly very less idea about what a living trust is and how it functions? Some of the most common questions asked while a living trust is mentioned are how and why? Why should one opt for a living trust instead of the tried and tested Will? How does living trust function? And what is probate? Read on to know the answer to all such questions.

What is a living trust?

We all have heard of the term ‘Will’ when it comes to the succession and distribution of the assets after one’s demise. Similar to the Will a living trust is also established by a person who wants the assets to be distributed among the heirs post his/her demise. The living trust thus can be called as an estate planning tool which makes it easy to pass on the assets to the heirs after one’s demise.

How does a living trust work?

A living trust, which also is referred to as “inter vivos” trust is a legal and written document by the virtue of which all your assets are placed into a trust. The assets placed in the trust are for your benefit during your lifetime and can be passed on to the heirs as per the instruction by the successor trustee upon your demise. The successor trustee is the representative chosen by the person who forms the trust. The trust protects the privacy of your assets and also makes the transition of the assets easy after your demise.

Comparison between a Will and a living trust

Will is considered to be the most popular tool when it comes to the post-demise asset distribution but there are various reasons why choosing a living trust is a better option. A Will has to undergo the process of probate before being enforced which significantly delays the process of assets transition. A Will also do not provide any protection to the person in case of being physically incapacitated and the decision, in that case, lies with the court whereas the living trust is for your benefit for lifetime.

What is Probate?

Probate is nothing but a legal procedure to be followed before enforcing the Will. In this process after a person’s demise, the court verifies that the debts are paid and then the assets are transferred to the successors as per the Will. In case of absence of a valid Will, the assets are distributed as per the applicable succession law.

This whole process of probate is not only time consuming but can also prove to be expensive with all the legal fees, execution fees etc. Other disadvantages of the probate are that there is no privacy to the family and they also cannot exercise control over the overall situation. This is why it is advisable to put your assets in the living trust.

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