A revocable living trust, or simply a living trust, is legal entity created to hold ownership of assets generally used to determine how their assets will be handled after they die. The person who creates this living trust is called the grantor or the trustmaker and typically also serves as the trustee, meaning they handle the administration of the trust. A living trust is the legal process for distributing but require a lot of upfront work. You should consult an Estate Attorney and an investment professional, especially if you’re unsure of the best way to plan your estate. 
Living trust vs will
Both living trusts and wills are an important part of estate planning and enable you to name beneficiaries, plan how you’d like your assets distributed and make changes if your situation or wishes take a turn. While a will does not take effect until you pass, a living trust covers you while you’re alive and well, while you’re alive but incapacitated and after your death. Living trusts also avoid the probate process, reduce the chance of a court dispute and keep your documents private. But even if you have a living trust, you should still make a will. This is especially true if you did not include all your assets in your trust or enough funds to cover the costs of distributing your assets.
How to set up a revocable living trust?
Hiring a lawyer to set up your revocable living trust may be a good idea if you have questions or a particularly tricky estate planning issue. But many people choose to do their own research and are able to successfully set it up themselves. This option will likely only cost you about $30 to $70 for a book or living trust software that will provide you with the necessary legal forms and guidance on the basic steps below.
1. Take an inventory of your assets
Compile a list of everything you own, including cash, real estate, bank accounts, retirement and brokerage accounts, life insurance and personal property like cars or family heirlooms.
2. Decide what will go into the trust
Think about what assets will go into the trust. Once you’ve settled on that list, review it for assets that may need a new deed or title issued in the trust’s name. Also note that there may be some assets, such as retirement accounts, that can’t be owned by a trust, although the trust can still be named as the beneficiary.
3. Who would inherit your assets
Next you’ll need to designate a person or entity as the recipient of each of these assets. Also consider whether they will be outright transfers and how long you wish assets to be held in trust before they are distributed.
4. Name a trustee
When you choose a trustee, you’re selecting the individual or institution responsible for managing your trust’s assets and honoring its provisions. You can be the trustee for your revocable living trust, but you’ll also want to designate a stand-in for when you’re no longer able to manage your assets and a secondary or co-trustee to assist your trustee or step in when he or she is no longer available. These are important decisions and you’ll want to consider individuals familiar with you and your beneficiaries, knowledgeable about financial management and able and willing to allocate the time and effort to oversee the trust and make distributions. You could also choose a corporate trustee, which is an entity that’s guaranteed to have trust management expertise and can serve for many years into the future.
5. Establish a “pour-over”
Establishing a “pour-over will” ensures unfunded or unallocated assets will automatically transfer to your established trust upon your death. This pour-over will helps prevent issues that could interfere with the seamless execution of a living trust and provides additional shelter from potential legal questions with a trust.
Revocable vs Irrevocable trust
The most obvious difference between a revocable and irrevocable trust is whether they can be altered or voided; a revocable trust can be changed. An irrevocable trust, on the other hand, cannot be modified or terminated without approval from everyone named in the trust. It’s important to note that once a trustmaker dies, because he or she no longer has the ability to make changes, a revocable trust then becomes irrevocable.
Pros and cons of revocable living trusts
The main advantage of a revocable living trust over an irrevocable living trust is that you can make changes to the trust document whenever and however you choose while you’re still alive and of sound mind. The disadvantage is that the assets remain yours, and therefore may remain taxable.
Pros and cons of irrevocable living trusts
The main advantage of irrevocable living trusts is that the assets belong to the trust and all taxes apply to the trust itself. The money is also safe from creditors and legal judgments. The disadvantage, of course, is giving up control over the assets as the trustmaker.
Is a living trust right for you?
Compared to wills, revocable trusts provide increased privacy and more control over asset distribution. However, they also require more work and need to be funded. It’s understandable then that living trusts are more common for big estates. If you have questions about which is best for your situation, you should consult a Estate Attorney or a trusted financial professional for advice.
Trust funds are becoming a popular solution for estate planning. No matter your financial situation, understanding the basics of how to set up a trust fund will help ensure your estate and beneficiaries are well served.
“How to Set Up a Trust: The Who, Why, When, and How” (accessed Nov. 19, 2020).
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