A ‘Living trust’ allows property to beneficiaries without probate
A trust is generally an agreement where one person (“trustee”) holds and manages property for the benefit of another. A trust can only be created when you are alive. Some trusts are called a “living trust” because the creator 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 you have died) to pass directly to your beneficiaries, without the process of probate.
To create a living trust, ask your lawyer to prepare a trust agreement that names a trustee - one or more responsible individuals or a bank or trust company. You will also be naming your beneficiaries. Even with a trust, you will still need to prepare and execute a will. The trust agreement, which defines the trustee’s rights and duties, also states that if you are disabled, a trustee may use the income and principal from the trust to pay your bills.
Upon your death, the trust property is distributed to your beneficiaries without probate. However, your successor trustee may alternatively continue to manage the trust property, without a distribution, if you have a surviving spouse or other named beneficiaries who may be minors, disabled, or have other special needs. In this way, your beneficiaries will receive the benefit of the trust over a number of years.
The trust agreement usually states that you retain the power to amend or revoke it whenever you wish. 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 you become incapacitated, a designated trustee will take over the control and maintenance of the trust. The trustee invests the trust funds and uses them for your benefit, 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 which are transferred into the trust. Accordingly, every time you acquire new assets, you must make sure that they are properly transferred into the name of the trust. Any assets which 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 and is a joint project with the Illinois Press Association. Its purpose is to inform citizens of their legal rights and obligations.