What is a Legal Trust and How Do I File One?

A legal trust is a separate legal entity in that you transfer ownership, pay taxes, and take care of your property and debt while you are alive. Likewise, you will decide who manages the trust after death or during illness.

Some legal trusts also have rules to help make decisions about money if anyone in the family cannot manage their affairs for any reason. Once trusts are established with an attorney, such as an estate planning attorney in Los Angeles, it may require some added expense changes or updates.

Legal Trust

In estate law, it is common to update and review legal trusts every couple of years at a minimum because the needs of a family can change quickly due to significant life changes. When planning a legal trust and deciding what to do with your assets after death, you may work to ensure that as many assets as possible bypass your will and go directly into your trust- this is called

“Dying with a revocable living trust.”

Many people are surprised to hear that they can place real estate assets into their living trust. The legal trust will have identified assets and create a separate bank account. Often that money is locked into the account during the life of the grantor.

If you were to start to withdraw large sums of money from your bank account, this may raise a “red flag” in the eyes of the IRS. They could then perform an audit on you and your taxes.

You may place items into a living trust that are not identified, such as cash or investment accounts. Also, you can transfer these assets into your legal trust at any time without paying any fees- this is important for those planning to transfer their business into their trust.

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Table of Contents

Types of Legal Trusts

There are three types of legal trusts:

Term

A “Term” trust lasts only for a specific number of years when the trustee (typically an attorney) can choose whether to redeem the trust. In most cases, they are not. Also, the trustee can decide whether to pay the income to you or not.

Probate

A “Probate” trust lasts for a fixed period and does not end until the grantor has died. It does not expire during the grantor’s lifetime, but an attorney must regularly update it to stay current with current laws that may have changed.

Revocable Living Trust

The third type of legal trust, “Revocable Living Trust,” is not legally recognized and is best suited for people who wish to avoid the complication and cost of probate after death. These terms are often used interchangeably but are not always accurate.

Besides, Revocable Living Trusts apply to a small minority of cases, where the trust requires nothing more than the grantor’s signature and has no special terms or conditions.

How to File a Legal Trust

  • An attorney can meet with you and help you through the process of building trust. There are several important steps:
  • The legal trust will be filed with the county in which you live or where your business is located.
  • Once the legal trust is filed, a personal representative will be appointed to manage your affairs if you become physically or mentally unable to manage them. This can be any person you choose and name in the trust; It does not have to be an attorney or relative.
  • You might complete an inventory of your assets, including real estate, vehicles, and financial documents. This will help the guardian of your trust if you cannot manage your finances or become mentally incapacitated.
  • You should name at least one alternate personal representative to your Revocable Living Trust; this is usually a family member with good judgment and financial acumen who can step in when needed.
  • The original legal trust must be filed with the court to have legal status as valid.
  • A public notary must sign a Declaration of Compliance, verifying that the trust was filed with the proper authorities and has been legally recognized. This is usually done at your local courthouse or a title company after a real estate transaction; the notary will require a deposit of a small amount for this service plus their commissions for the work.
  • You should also name a successor trustee if your original trustee is unable or unwilling to serve in their capacity for some reason or dies before you.
  • If you are married but have no children, you need to name a successor heir who will take over as beneficiary of the trust after your death.
  • You should choose either a life expectancy clause or a distribution date in the legal trust that requires the assets to be divided among heirs earlier than if no date was specified in the trust document.
  • If you have children, you should name a guardian to the trust, who will be in charge of these assets after your death.
  • You will also need to name someone to ensure that the trust is updated as needed and that all bank accounts are properly titled and properly funded; this person is known as a “Trustee.”
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Conclusion

The bottom line is that legal trust is sometimes the best way to ensure that your assets will be safe and protected when you die. If you are thinking about establishing a legal trust, you should plan carefully with your attorney so that it complies with the laws and regulations of all relevant states.

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