A Living Trust Transfers Property Without Probate
A trust is generally an agreement in which one person (“trustee”) holds and manages property for the benefit of another. A trust can only be created when a person is alive. Some trusts are called a “living trust” because the creator (also called a settlor or grantor) is also the initial Trustee, which allows the creator/trustee to make decisions regarding the trust property during his or her life. For this reason, it is called a living trust. The trust vehicle allows property (after a person has died) to pass directly to beneficiaries, without the process of probate.
To create a living trust, ask a lawyer to prepare a trust agreement that names a trustee - one or more responsible individuals or a bank or trust company. Beneficiaries will be named. Even with a trust, the settlor still needs to prepare and execute a will. The trust agreement, which defines the trustee’s rights and duties, also states that if the settlor is disabled, a trustee may use the income and principal from the trust to pay bills.
Upon the settlor’s death, the trust property is distributed to beneficiaries without probate. However, the successor trustee may alternatively continue to manage the trust property, without a distribution, if the settlor has a surviving spouse or other named beneficiaries who may be minors, disabled, or have other special needs. In this way, beneficiaries will receive the benefit of the trust over a number of years.
The trust agreement usually states that the settlor will retain the power to amend or revoke it whenever he or she wishes. Because of this feature, these trusts are sometimes called “revocable trusts” or “revocable living trusts.”
One of the major advantages of a living trust is that it provides comprehensive disability planning. If settlor becomes incapacitated, a designated trustee will take over the control and maintenance of the trust. The trustee invests the trust funds and uses them for benefit of the settlor, according to the instructions in the trust. Though the designated trustee cannot use the assets for their own benefit, they may receive “reasonable compensation” for services rendered, if it is allowed under the terms of the trust.
One of the caveats in establishing a trust is to ensure that assets are actually transferred into the trust, or to say it another way – that the “trust is funded.” The trust, of course, can only control the assets that are transferred into the trust. Accordingly, every time new assets are acquired, they must be properly transferred into the name of the trust. Any assets that have not been transferred will therefore pass through probate, thereby negating one of the primary advantages of a living trust.
Note: This information was prepared as a public service by the Illinois State Bar Association. Every effort has been made to provide accurate information at the time of publication. For the most current information, please consult your lawyer. If you need a lawyer and do not have one, visit our lawyer referral page.
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