This living trust is simple to set up and makes transferring property after your death or during your disability quick and easy.
How a Living Trust Works
A revocable living trust does what a will does: it leaves your property to the people you want to inherit it. But with a trust, your property doesn’t have to go through probate at your death.
You can create a revocable "Living" trust by signing a document called a Declaration of Trust. Revocable means you can cancel it at any time. It’s called a “living” trust because it’s created when you’re alive, not at your death like some other kinds of trusts.
When you create a revocable living trust, you appoint yourself as trustee with full power to manage trust property. Then you transfer ownership of some or all of your property to yourself as trustee, keeping absolute control over the property held in trust.
• sell, mortgage, or give away property held in trust
• put ownership of trust property back in your own name
• add property to the trust
• change the beneficiaries
• name a different successor trustee, or
• revoke the trust completely.
No separate income tax records or returns are necessary as long as you are both the owner and the beneficiary of the trust. (IRS Reg. § 1.671-4.) Income from property held in the living trust is reported on your personal income tax return.
If you and your spouse or partner create a trust together, both of you must consent to changes, although either of you can revoke the trust entirely.
After you die, the person you named in your trust document to be “successor trustee” takes over. This person transfers the trust property to the relatives, friends or charities you named as the trust beneficiaries. No probate is necessary for property that was held in trust. In most cases, the whole thing can be handled within a few weeks. After all the property is transferred to the beneficiaries, the living trust ceases to exist.
When a couple creates a basic probate-avoidance living trust, the surviving spouse or partner becomes sole trustee when the other spouse or partner dies. The trust itself is automatically split into two trusts. Trust 1 contains the deceased grantor’s share of trust property. No one can change its terms or revoke it. The survivor distributes this property to the beneficiaries. Trust 2 contains the survivor’s share. The survivor is free to revoke Trust 2 or amend its terms.
If any of your beneficiaries inherit trust property, the successor trustee (or the surviving grantor, if you made a trust with your spouse or partner) will follow the instructions you left in the trust document, and either:
• transfer the property inherited by the child to the “custodian” you chose, to manage the property until the child reaches the age of 21 in Illinois, or
• keep the property in a “child’s subtrust,” using it for the child’s benefit, until the child reaches an age you designate, up to the age you choose.
Unfortunately, you can’t escape legal vocabulary entirely when you deal with living trusts. here are some basic definitions:
• The person who sets up the living trust (that’s you) is called a grantor, trustor or settlor.
• The person who has complete power over the trust property is called the trustee. you are the original trustee of your living trust, so you keep total control over property in the trust. if you and your spouse or partner make a trust together, both of you are trustees.
• The property you transfer to the trustee is called, collectively, the trust property or trust principal. (And, of course, there’s a Latin version: the trust corpus.)
• The person you name to take over as trustee after your death (or, with a shared trust, after the death of both grantors) is called the successor trustee. The successor trustee’s job is to transfer the trust property to the beneficiaries, following the instructions in the Declaration of trust. The successor trustee may also manage trust property inherited by young beneficiaries.
• The trust beneficiaries inherit the trust property when the grantor dies. With a basic trust, there is just one kind of beneficiary. if you make an AB trust, there are two kinds: the life beneficiary, who is always the surviving spouse, and the final beneficiaries, who inherit trust property after both spouses have died.