DIY Living Trust: Should You Do It?

Dan Mckenzie • April 28, 2023

Many people decide to set up a revocable living trust to avoid probate, guard their family’s privacy, or empower a trustee to manage their assets if they become disabled. Since some online sources offer a free and quick trust document template, it’s tempting to forgo hiring an estate planning attorney and save money by setting up a DIY living trust.

Should you set up a living trust by yourself? The most likely answer is “no.” Let’s break down how living trusts work and why working with an estate planning attorney is the best option for most people who want to create a revocable trust.

WHAT IS A DO-IT-YOURSELF LIVING TRUST?

A living trust is a legal document that can transfer ownership of assets from an individual to a separate legal entity — the trust —which involves three parties:

The grantor, a.k.a trust creator
The trustee or trustees
The beneficiary or multiple beneficiaries

Once you transfer property or funds to a trust, you legally relinquish ownership of these assets, and henceforth, they belong to the trust. However, since a grantor can also appoint themselves as trustee, you may continue using the property as before. You can also change or rescind a revocable living trust anytime during your lifetime, provided you have the mental capacity to do so.

A DIY living trust is just what it sounds like: a grantor setting up their own trust without consulting an estate planning lawyer.

IS IT SAFE TO MAKE YOUR OWN LIVING TRUST?

The law doesn’t require you to hire an attorney to create a trust, so a DIY living trust is a legally valid option. However, many people who create their own living trusts, or the beneficiaries of these trusts, ultimately discover that working with an estate lawyer could have saved them a lot of time, hassle, and often also money.

In some cases, DIY trust creators have:

Accidentally used template documents designed for another state

Overlooked other legal documents they would need besides the living trust, like a new deed to transfer real estate assets

Made technical mistakes that would eventually invalidate their trust

Is the money you save by setting up a DIY trust worth the additional risk? Only you can decide that. Most professionals would say proper estate planning is too important to hazard mistakes by eschewing legal counsel.

Finally, it’s worth noting DIY living trust templates include a disclaimer stating that this type of document “does not substitute legal advice.”

WHAT CAN A LIVING TRUST DO?

Living trusts can accomplish several purposes. Namely, a living trust may help you:

Avoid probate. In most cases, any property you owned solely in your name will have to go through probate, a legal process that usually takes at least a few months. Living trusts can bypass this step, distribute property directly to a beneficiary, and avoid probate fees.
Control assets after your passing. Compared to wills, living trusts allow for more flexible control over asset distribution. You may stipulate that beneficiaries receive trust assets when they fulfill certain conditions — for example, when your adult child graduates from college.
Ensure smooth asset management if you become incapacitated. Your trust can allow a successor trustee to step into their duties immediately if you can no longer manage your own assets.
Protect young beneficiaries. If you have minor children, you can create a living trust to hold their inheritance until they become legal adults or until a certain age.
Keep your legacy private. Probate goes on public records, so theoretically, anyone could look into your property after your death. Trusts allow you to keep your affairs private.

WHY DO YOU NEED ONE?

Your reasons for creating a living trust may depend on what you want to accomplish by setting up the trust: avoid probate, financially safeguard your family, or make sure an adult child receives their inheritance at the right time. Your estate planning goals may also influence the trust structure.

Keep in mind that a revocable trust does not shield your assets from creditors or Medicaid, nor does it help avoid inheritance taxes or estate taxes. To shelter your assets from claims or reduce inheritance tax, you may want to look into irrevocable trusts. An asset protection attorney can help you decide what types of trusts to include in your estate planning.

WHO SHOULD GET A LIVING TRUST?

You may consider setting up a living trust if you:

Own many assets
Hold property in more than one state
Have a complex family situation, such as children from two or more marriages
Own a business
Want to release assets to heirs not immediately after your passing but at a certain future point

HOW TO CREATE A DIY LIVING TRUST?

As you prepare to set up a trust, make a complete and detailed list of all your assets, including:

Real estate
Vehicles
Stocks and bonds
Bank accounts
Insurance policies

You will also need to source certificates and deeds that confirm your ownership of these properties.

Some of your assets, like life insurance policies or IRA accounts, may already have a designated beneficiary. You don’t need to include these assets in the trust.

Then, draft a beneficiary list that may include your spouse, family members, friends, charities, or anyone to whom you may wish to leave property.

Finally, consider whom you choose to appoint as a successor trustee. It can be your adult child, sibling, business partner, or even a trusted close friend. You can also name a trust management company or another financial institution as your successor trustee.

Once you have all these details in place, you can proceed with trust formation, which includes the following steps.

TRUST DOCUMENTATION

Your Declaration of Trust, the legal document that forms a trust, should include your name and list anyone whom you name as a co-trustee, successor trustee, or beneficiary. You should also describe relevant assets and instruct your successor on how to distribute property after your passing.

An estate planning lawyer can review your trust documentation to make sure it’s legally valid and answers your purpose.

NOTARIZATION

In most states, you will need a notary public to endorse your trust to make it enforceable. After confirming your ID, the notary public will sign, date, and stamp the documents. Many attorneys also provide notary services.

PROPERTY TRANSFER

Once your trust becomes active, you can transfer assets into its ownership. Typically, these transfers will involve high-value assets like your house, stocks, and bonds. To transfer real estate assets, you will need a quitclaim deed and a new deed establishing the trust as the owner of the property.

If you own a company, you may also place it in a trust as part of your business succession plan.

HOW MUCH DOES IT COST TO CREATE A LIVING TRUST BY YOURSELF?

Creating a DIY living trust may cost under $100 if you use a ready template. Hiring an attorney makes trust setup more expensive.

However, although you can save money with a DIY trust, you or your family may eventually pay a lot more if incorrect trust documentation leads to a dispute or if a court invalidates a trust because of legal errors and trust property has to go through probate after all. And that’s not counting the additional time and energy your loved ones may need to invest to resolve a potential trust dispute.

LIVING TRUST TAXES

As a rule, if a trust has an income of $600 a year or more, the trust must submit a federal tax return as a separate legal entity. However, the income of revocable trusts under the grantor’s control belongs to the grantor’s personal return, and the trust doesn’t need to file separately.

After the grantor dies and the successor trustee distributes any remaining assets, the beneficiaries will have to pay taxes on the property they receive, unless it’s returned principal, i.e., property that already underwent taxation. Any capital gains on trust assets are subject to taxation.

Working with an estate attorney can help ensure that you comply with trust-specific taxation requirements and provide all the necessary IRS forms, chief among which are Forms 1041 and K-1.

RISKS OF SETTING UP YOUR OWN LIVING TRUST

When people establish a DIY living trust, they rarely consider how many issues may arise because a legal professional hasn’t revised their living trust forms. Potential problems with making a living trust on your own include:

Technical errors that may invalidate the trust document
Not following the right procedures when transferring assets or money to a trust
Unclear wording that creates an opportunity for trust disputes
Potential probate litigation that leads to ugly family conflict
An incomplete understanding of the trust’s purposes, like mistakenly assuming that living trusts may shield assets from debt claims

A skilled asset protection attorney can help you avoid common pitfalls and set up a living trust as part of your overall estate planning strategy, along with other documents like your last will and testament. For example, an attorney can advise you on which assets to transfer to a living trust and which property you may choose to protect by locking it in an irrevocable trust.

WHEN DO YOU NEED TO SEE A LAWYER?

In almost all cases, you will benefit from hiring a competent estate planning lawyer to create a living trust correctly. An experienced estate attorney will know how to create a trust document that helps protect your assets, safeguards your beneficiaries’ interests, and avoids various legal issues.

Working with an estate attorney is especially important if:

You have a high net worth or complex estate
You carry a lot of debts
You own property overseas or live abroad
You believe there’s a high chance of conflicts over legacy in your family
You aren’t sure whom to appoint as your successor trustee

what next?

If you think it might be time to think through your estate plan, you can:

Give us a call at 720-821-7604 to schedule a "Attorney EvaluationSession" at which we can determine whether our firm would be a good fit for your needs. Or fill out our contact form to have us call you.
Visit our estate planning page to learn more about how proactively thinking through your estate plan can protect you and your family, minimize hassle, lower the chance of family discord, and minimize or eliminate taxes.
Learn more by reading our blog or watching our videos.

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Dealing with the death of a loved one is never easy, and navigating the legal process that follows can add stress during an already difficult time. In Colorado, probate is the legal process by which a deceased person’s estate is administered, their debts are paid, and their assets are distributed to beneficiaries. Whether you’re an executor, beneficiary, or family member, understanding how probate works in Colorado can help you anticipate the steps involved and your potential responsibilities. This blog post will provide an overview of the probate process in Colorado, outline when probate is necessary, and offer guidance on how to navigate the system effectively. What is Probate? Probate is the legal process that occurs after someone dies to ensure their assets are distributed according to their will or, if there is no will, according to state law. The probate process includes validating the will, inventorying the deceased’s assets, paying off debts and taxes, and distributing the remaining assets to the rightful heirs. While probate is often associated with lengthy court proceedings, not all estates require formal probate. Colorado offers several options depending on the size and complexity of the estate, which can help simplify the process in many cases. When is Probate Necessary in Colorado? Probate is not always required in Colorado. Whether an estate must go through probate depends on the types and value of the deceased’s assets. Generally, probate is necessary if: The deceased owned real estate solely in their name. The deceased’s assets, such as bank accounts or investments, were not held in joint tenancy or designated to transfer on death. The deceased had personal property valued at over $74,000 (as of 2023). If an estate falls below this threshold and does not include real estate, the beneficiaries can often use a Small Estate Affidavit to claim the assets without going through probate. Types of Probate in Colorado Colorado has three main types of probate procedures: small estate procedures, informal probate, and formal probate. The type of probate required depends on the estate’s value and whether there are disputes among heirs or creditors. Small Estate Procedure (Collection by Affidavit) The small estate procedure can be used if the value of the deceased’s assets is less than $74,000 and does not include real estate. This process involves filling out a Small Estate Affidavit, which allows the heirs to collect and distribute the assets without opening a probate case in court. It is the simplest and fastest way to handle a small estate. Informal Probate Informal probate is used when there is a valid will and no disputes among heirs or creditors. The process is overseen by a court-appointed Personal Representative (executor), but there is minimal court supervision. Most of the process, such as distributing assets and paying debts, is handled by the Personal Representative, with only basic filings required with the court. Informal probate is less time-consuming and costly than formal probate. Formal Probate Formal probate is required when there are disputes regarding the will’s validity, disagreements among heirs, or if the estate is complex and needs court intervention. The process is supervised by the court, and all major decisions, such as approving the distribution of assets, must be approved by a judge. Formal probate can take much longer and involve more legal fees than informal probate. Steps in the Colorado Probate Process While the specific steps in probate can vary depending on the type of probate and the complexity of the estate, the general process in Colorado typically includes the following: Filing the Probate Petition The process begins with filing a Petition for Probate with the appropriate Colorado probate court. The petition is usually filed by the executor named in the will or an interested party if no will exists. Appointment of the Personal Representative The court will appoint a Personal Representative (executor) to manage the estate. If there is a valid will, the person named as executor is typically appointed. If no will exists, the court will appoint someone, usually a family member, to serve as the Personal Representative. Notice to Heirs and Creditors The Personal Representative must notify all potential heirs and creditors of the probate proceeding. This step is essential for providing an opportunity for interested parties to come forward and make claims against the estate. Inventory and Appraisal of Assets The Personal Representative must create an inventory of all the deceased’s assets and have them appraised if necessary. This inventory will include real estate, personal property, financial accounts, investments, and any other assets owned by the deceased. Paying Debts and Taxes Before distributing assets, the Personal Representative must pay off the deceased’s debts and any taxes owed. If the estate does not have enough assets to cover all debts, Colorado law dictates the order in which creditors are paid. Distribution of Assets Once all debts and taxes have been paid, the Personal Representative can distribute the remaining assets to the beneficiaries according to the will or, if no will exists, according to Colorado’s intestacy laws. Closing the Estate After all assets have been distributed and all required filings have been made with the court, the Personal Representative can file a Petition for Final Settlement to close the estate. Once approved, the Personal Representative’s responsibilities are complete. Challenges and Disputes in Colorado Probate Unfortunately, probate can sometimes become contentious, especially in cases involving high-value estates or when family members disagree on how assets should be distributed. Some common challenges in Colorado probate include: Will Contests Heirs or beneficiaries may challenge the validity of a will, claiming it was signed under duress, there was undue influence, or the deceased lacked the capacity to create the will. Will contests can significantly delay the probate process and require formal probate to resolve. Executor Misconduct If an executor is not fulfilling their duties or is mishandling estate assets, beneficiaries can file a complaint with the court and request the executor’s removal. Disputes Among Beneficiaries Disputes can arise over specific bequests, how assets are divided, or even the valuation of estate property. Mediation or formal court intervention may be necessary to resolve these disputes. How a Colorado Probate Attorney Can Help Navigating the probate process can be overwhelming, particularly when dealing with the emotional aftermath of losing a loved one. An experienced probate attorney can help in several ways: Guiding You Through the Process An attorney can explain the probate process, help you understand your rights and responsibilities, and ensure all legal requirements are met. Managing Court Filings and Deadlines Probate involves numerous legal documents and deadlines. An attorney can handle these tasks, ensuring that everything is filed correctly and on time. Resolving Disputes If disputes arise, an attorney can provide representation in negotiations, mediation, or court hearings to protect your interests and work toward a fair resolution. Minimizing Costs and Delays With the guidance of a skilled attorney, you can often minimize the time and expense associated with probate, helping ensure the process goes as smoothly as possible. How The McKenzie Law Firm, LLC Can Help At The McKenzie Law Firm, LLC, we understand the complexities of the probate process and are committed to helping families navigate it with compassion and expertise. Whether you’re an executor needing assistance with your duties or a family member looking to understand your rights, our experienced probate attorneys can provide the support you need. If you have questions about probate in Colorado or need legal assistance, contact us today to schedule a consultation. We are here to guide you through the process and ensure your loved one’s wishes are honored.