How A Living Trust Works



The Living Trust is a set of documents including a Declaration of Trust, a (Pour over) Will, a Durable Power of  Attorney, a Power of Attorney for Health Care and related documents personalized for the individual(s).  Signing the documents is called “executing”  the trust.

Three steps are required:

  • Sign the documents;

  • Notarize your signature; and

  • Transfer assets to the trust (called “funding”).

 Funding Your Trust

Transferring assets to your trust is called “funding”  the trust.  A funded Living Trust is one in which you (the settlor) have transferred ownership of major assets to the trust.  The trust will not be effective until it is funded (i.e., placing the assets in the “pot”).

As noted above, you are the settlor of the trust B meaning simply that the trust belongs to you.  You also manage the assets, which are placed into the trust.  Thus, the settlor is also called the “trustee”  of the Living Trust.  After your death, your “successor trustee”  takes over the management of the trust assets.

Finally, the settlor and the trustee (who are often  the same person) is also named as the initial beneficiary of the trust.  The beneficiary is a person who will benefit from the trust during his/her lifetime.  Since you have created the trust, manage its assets, and benefit from the trust, you are called the settlor, trustee and also life beneficiary of the trust.

Although it may sound complicated at first, the person who created a Living Trust wears three “hats”:

  1. Settlor;

  2. Initial trustee; and

  3. Lifetime beneficiary.

Establishing a Living Trust enables an individual or family to transfer property to the trust without giving up management or control.  Unlike an “irrevocable”  trust (which can’t be changed), the revocable Living Trust gives you all the benefits of a trust, but does not take away your control over the assets or your benefits from those assets.