A living trust is one of several types of trusts. What you want the trust to do, how many assets you have, and whether you want to control the assets in the trust are some of the questions you'll need to know how to answer to determine what type of trust to choose.
With a living trust, you typically retain control of the trust. Many people also call it a Revocable Living Trust. In other words, until your death, you can change the terms of the trust, or even do away with it completely. You can move assets in and out of it as you choose. Some of the common reasons to have a trust are to minimize taxes, make sure your heirs are taken care of, and avoid probate.
Because of the difficulty, it is recommended that you choose a reputable trust attorney. Depending on your situation, you may even need one with a specialty in your particular needs. While it is possible to find generic documents in various places that indicate that you can fill them out and set up a trust yourself, it might not be quite so easy.
Each state has its own rules and quirks. Unfortunately, if you don't follow the rules to the nth degree, your trust may be null and void.
With a trust, you'll need to choose a trustee. This will be the person responsible for making sure the wishes of the trust are carried out. Typically, in a living trust the person who set up the trust is also the trustee. That person is also called the "Grantor" or the "Maker" of the trust. They are the person who is putting their assets into the trust. They can choose to have another person designated as trustee, but part of the reason for having a living trust is so that you can keep control of the assets.
Usually you will also designate a "Successor" trustee. This person will assume control of the trust only when the original trustee is incapacitated or dead. You will also want to designate beneficiaries. After all, one of the reasons for having a trust is to avoid probate.
You will also need to determine what assets you want to move into the trust. Assets like bank accounts, houses and stock accounts will need to be re-titled. You will probably have to fill out new documents and provide evidence of the trust to get that done. Any other assets where your name is on a title should be verified to make sure you don't need to get those re-titled as well. Other assets like personal possessions can be identified in the trust as belonging to the trust but you shouldn't need to do anything else.
An Individual Retirement Account (IRA) cannot be put directly into the trust. You can list the trust as beneficiary for an IRA but that is not recommended! Except for very rare occasions, if a trust is listed as a beneficiary, the potential tax deferral benefits are lost. An IRA must have living persons as beneficiaries if the beneficiary is to take advantage of the Stretch IRA.
Don't forget to review your trust regularly and make sure that all your choices are still valid. For example, if someone predeceases you, you'll need to remove them and identify in your instructions who is to take their place.
Trusts certainly have a valid use in today's financial society. However, some people don't need to spend the money on a trust. They may get essentially the same benefits by carefully naming beneficiaries and filling out a valid will. So don't let someone pressure you into getting a trust. Make sure it's something you really need and then use a reputable and knowledgeable person to help you get that set up.