A Trust is a contract between the person who creates the Trust, called the Grantor or Trustor, and a designated Trustee, who will manage the Trust on behalf of those designated to benefit from the Trust, referred to as the Trust Beneficiaries.
After the Trust is created, the Grantor funds the Trust by transferring legal ownership of his or her assets to the Trust, where they will be managed by the Trustee on behalf of the Trust Beneficiaries and per the terms of the Trust Agreement.
Trusts are created for a variety of different purposes. Some Trusts are created for estate planning purposes (asset management and probate avoidance), while others are created for privacy of ownership and asset protection. Trusts are also used by major institutions, such as the Rockefeller, Ford, and Melon Foundations, for the conservation and distribution of vast amounts of wealth.
What is a Living Trust?
A Living Trust is most simply defined as a Trust that is created during the Grantor's lifetime. This is in contrast to a Testamentary Trust, which is created upon the Grantor's death by a provision in his or her Will.
Living Trusts are used to achieve a variety of specific estate-planning objectives. Some Living Trusts are used for a single estate-planning objective, such as probate avoidance. Others help you achieve more than one objective. Still, other Trusts are used instead of a Will as the central controlling document of a comprehensive estate plan.
Living Trusts are commonly used to achieve the following estate planning objectives:
- To pool assets for management;
- Incapacity planning;
- To direct the distribution of one's assets after death;
- To protect and manage assets for minors and individuals with special needs;
- Probate avoidance; and
- Privacy
Types of Living Trusts
Living Trusts come in two basic varieties:
- Revocable; and
- Irrevocable
A Revocable Living Trust is one that can be amended or revoked at the Grantor's discretion. Contrarily, an Irrevocable Living Trust is one that, once created, cannot be amended or revoked.
Revocable Living Trusts are much more common than Irrevocable Living Trusts. But, all revocable Trusts become irrevocable upon the death of the Grantor.
What is a Land Trust?
A Land Trust is a special type of Trust conceived to hold title to real estate and real estate-related assets such as real property, land options, contracts for deed, mineral rights, air rights, etc.
Land Trusts are primarily used by real estate investors to hold title to property. This is because, unlike a corporation or LLC, a Land Trust does not have to be registered with the state.
The Trustee stores the Trust document and does not have to reveal any information regarding the beneficial interest holder(s) to anyone. This provides a great deal of anonymity and privacy of ownership, which can deter frivolous lawsuits against the property owner.
Differences Between a Land Trust and Living Trust
The most notable differences between a Land Trust and a Living Trust are as follows:
- Land Trusts are specifically designed to hold real estate and real-related assets, while Living Trusts hold all types of assets — cash accounts, investment, real property, personal property, notes, intellectual property, business interests, and more.
- While Living Trusts are primarily used to achieve estate planning goals, Land Trusts are for privacy and anonymity.
- Most Living Trusts are trustee-driven. In other words, the Trustee decides what happens with the Trust Assets. Land Trusts, however, are beneficiary-driven, meaning that the Trust Beneficiary dictates what happens to the assets held in the Trust.
Living Trust vs. Will
A Will is an estate planning document created to leave instructions for how your estate should be distributed after your death and to allow you to name guardians for your minor children. A Will is the most commonly used estate planning document.
Wills and Trusts are similar insofar as they can both allow you to name beneficiaries for your assets. What's more, if a Trust is revocable, it can be revised whenever your intentions and/or your circumstances change, just like a Will.
However, a Will simply describes and states who gets your assets after you die. While a Trust requires you to go one step further and transfer those assets into the Trust to be distributed later. This is commonly referred to as funding the trust.
Furthermore, assets that are distributed through a Will must go through probate before being distributed to your heirs. Assets held in a Trust, on the other hand, bypass probate and pass on directly to the Trust Beneficiaries.
Lastly, a Will allows you to name guardians for your minor children. You cannot name guardians for your minor children in a Trust.
Living Trust Advantages
- Probate Avoidance - Probate can be time-consuming and expensive and should be avoided wherever possible.
- Privacy - a Trust is a private document. Because of this, the affairs of your estate remain confidential.
- Flexibility - while a Will only dictates what happens to your estate after you die, a Living Trust can cover what happens to your estate 1) while you are alive and well, 2) if you become mentally incapacitated, and 3) after you pass away.
Living Trusts Disadvantages
- The Expense - A Living Trust typically requires the assistance of an experienced estate planning professional to ensure that the terms of the Trust accurately capture your intent and that the Trust is properly funded with your property.
- The Work Required - A Living Trust needs to be funded with the assets you own. What's more, this will need to be done whenever you acquire new assets or refinance your existing assets.
- Due Process Concerns - When you use a Trust to devise your estate, there is no court to supervise the process and ensure due process. You can only hope and trust that your Trustee will carry out your wishes per the terms of your Trust agreement.
- Guardians - You cannot appoint guardians for your minor children in your Trust.
Do I Need A Living Trust?
For most situations, an estate plan that is centered around a Living Trust is a better option than a Will-based estate plan. However, a Will may still be needed to achieve certain estate planning objectives.
The best way to determine if you need a Living Trust is by consulting with a qualified estate planning attorney. An experienced attorney can help you determine if your estate planning needs are best served by a Will or Living Trust, and help you create an estate plan that is tailored to your particular estate planning goals.
Call us today to arrange a free consultation with a knowledgeable and experienced Wyoming estate planning attorney.