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A trust is an arrangement in which you transfer property to a second person for the benefit of a third person. The person creating the trust is called the "grantor." The person holding legal title to the trust property is the "trustee." The person to whose benefit the trust is created is the "beneficiary." All three of the people-the grantor, trustee and beneficiary-can be the same person.

Living trusts are one important tool in distributing your property upon death.

Caution: Living trusts can be the subject of consumer fraud. Be very cautious if someone approaches you with a living trust scenario that sounds too good to be true. Get advice from someone you trust and never feel pressured to sign any documents immediately.

What is a living trust, and how can it assist me?

A living trust is created during your lifetime. A revocable living trust-meaning you can revoke it during your lifetime-is an increasingly popular way to avoid probate. You place property in the trust. To do so, you will have to give the trust legal ownership of the property.

Example: You register all new assets in the name of the trust. You can name yourself or someone else as trustee. You then reserve the right to revoke the trust so the property can be returned to you.

Generally, the trust will designate who is to receive the property at your death. This typically avoids probate of the property.

What advantages does a living trust have that a will does not?

A living trust avoids the inefficient and expensive probate system. It usually avoids the delays and costs involved with probate courts. You can enjoy all the income from the trust assets during your lifetime. You do not lose control of your property because you can always terminate, modify or revoke the trust and reclaim the assets.

TIP: Trusts also ensure privacy. Unlike trusts, property going through probate is a public record. Anyone can gain access to this personal information in probate.

How do I create a living trust?

A living trust is established by creating a trust document. The trust document provides instructions for managing the trust property during your lifetime. It also directs the distribution of the trust property at your death.

If I put all my property in a living trust, do I still need a will?

It is best to have both. Although you may place all your property in a living trust, there may be assets outside the trust that require probate. This may include someone owing you money or a legal claim you have against someone. You also want a will to name a personal guardian of any minor children.

Will I save taxes by using a living trust?

No. Assets in your living trust are included in your estate for estate tax purposes. But you can include in the trust document any tax-saving provisions that you could include in a will.

Can my creditors reach the assets in my living trust?

Yes. Because living trusts are fully revocable, your creditors can reach the assets held in the living trust. Under some circumstances, an irrevocable trust offers protection against creditors.

What if I become incapacitated while I am the trustee?

Living trusts generally provide for successor trustees. Therefore, if you become incapacitated before your death, the successor trustee can manage the trust for your benefit.