WHAT IS A LIVING TRUST?
Upon death a person's property is distributed according to whether the property is classified as probate or non-probate. Generally, non-probate property includes property owned by joint tenancy, life insurance, legal life estates, and inter vivos trusts. Probate property is everything else whether named in your will (testate property) or not (intestate property).
Probate is a legal process which distributes probate property after death. The process includes: filing the will with the probate court, proving the will's validity, obtaining an inventory and appraisal of estate items, paying off all debts of the deceased person, and distributing the property.
A trust is a legally created entity created by one person ("Settlor") which allows another person ("Trustee") to control property for the benefit of yet another person ("Beneficiary"). In most cases, each person is a separate individual, but this is not the case in a living trust where the Settlor is the Trustee, and the Beneficiaries are those who will get the property upon the Settlor's death. Thus, when you create your living trust, you are both the Settlor and the Trustee, and those you designate to get your property upon your death are the Beneficiaries. The person you designate to carry out your wishes after your death is called the Successor Trustee.
While not everyone needs a living trust, a living trust is likely to be your best method of estate distribution if: (1) Your estate is over $20,000; (2) You own any real property (house, building, or land); (3) You want your children to inherit from you in case your spouse remarries; (4) You want to close your estate swiftly and avoid years of probate delays; (5) You want to protect your assets in case you become disabled; or (6) You want to keep the distribution of your estate private (wills are filed with the court and their contents can be public information).
With a living trust, you remain in control of, and own, your entire estate while you are alive. You can easily transfer your property into the trust as needed. Your real property can be mortgaged, sold, and leased, whether it is in your trust or not. The main thing you need to do to manage your trust properly is to keep your property in the trust. If the property has a title document (such as your house), then the document must show that the trust is the owner. For other property, if it is valuable you can add it to your trust by keeping a written list with the trust documents. For lesser valuable property, a catch-all list of items may suffice. If property is not listed in your trust when you die, it will not be distributed under the plan in your trust.
If your trust is prepared by an attorney, your attorney will advise you how to place items in your trust. Expect your attorney to charge a fixed fee to prepare estate planning documents where the fee will depend on the complexity of your estate.