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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.
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:
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.
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.”
Living trusts can accomplish several purposes. Namely, a living trust may help you:
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.
You may consider setting up a living trust if you:
As you prepare to set up a trust, make a complete and detailed list of all your assets, including:
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.
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.
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.
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.
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.
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.
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:
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.
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:
If you think it might be time to think through your estate plan, you can:
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Disclaimer: The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute an attorney-client relationship.
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