How to Create a Living Trust: A Step-by-Step Guide

A living trust is a legal arrangement where you transfer ownership of your assets into the trust while you’re alive. You can continue using and controlling those assets, but the trust sets out how they’ll be handled after you die or if you become incapacitated (meaning you’re unable to make decisions due to illness or injury).

How Living Trusts Can Be Part of an Estate Plan

Living trusts help ensure your wishes are followed without the delays or costs of probate. They also keep your estate private, which can be an advantage compared to wills that become public record. Here’s a quick scan of key benefits of a living trust:

When you form a living trust, you transfer ownership of your assets  like your home, bank accounts, investments, or other property into the trust. You serve as the trustee while you’re alive, which means you still manage and benefit from those assets.

After you pass away or if you become incapacitated, a successor trustee you’ve named steps in. That person distributes assets to your beneficiaries according to your instructions, without going through probate.  This makes the process faster, more private, and often less costly for your family.

By contrast, most wills must go through probate, which is a court process that validates the document and oversees how assets are distributed. That can add time and expenses that a living trust helps avoid.

A living trust isn’t just for wealthy people. It can be a smart choice for anyone who wants more control and flexibility in their estate planning. You may want to consider creating a living trust if:

• You own a home or multiple properties.
• You have children or other dependents.
• You want to keep your estate private and out of probate.
• You have significant savings or investments to pass on.
• You want to prepare for the possibility of incapacity.

When A Living Trust Might Not Be Needed     

For individuals with very simple estates, a will may be sufficient. If you don’t own real estate and have only a few assets, the time and cost of setting up a trust may outweigh the benefits.

Example: A Living Trust vs. a Traditional Will

Clint and Maggie own a farmhouse and 12 acres of land. Their goal is to leave the house to their daughter Megan and the farmland to their son Chad. Here’s how that plays out with a will versus a living trust:

Setting up a living trust involves several clear steps. Here’s how to set up a living trust that works for your situation:

• Decide on the type of trust

Choose between a revocable or irrevocable living trust based on your goals.

• List your assets

Include property, bank accounts, investments, and other valuables you want to transfer.

• Choose a trustee

You’ll usually act as your own trustee during your lifetime, but name a reliable successor to take over later to manage the trust.

• Draft the trust document

You can create it with an attorney or use an online tool, but make sure it meets state requirements.

• Sign and notarize

A living trust must be properly signed and notarized to be valid.

• Transfer assets into the trust

Change titles, deeds, and account ownership so the trust legally holds them. Without this step, the trust is just an empty document and won’t actually control or protect your property.

Trust Documents and Information You Need

Creating a living trust requires gathering the right paperwork upfront. Having these ready makes the process smoother:

• Personal information: Full names, addresses, and Social Security numbers of you, your trustee, and your beneficiaries.
• Asset details: Titles, deeds, and account numbers for property, bank accounts, and investments.
• Debts and obligations: Information on mortgages, loans, or other outstanding liabilities.
• Insurance and retirement accounts: Beneficiary designations and policy details.
• Special instructions: Any unique wishes, such as charitable donations or provisions for dependents.

There are a few types of living trusts, and the best for you depends on your goals, how much flexibility you want, and whether tax planning is a priority. The two main options are revocable and irrevocable trusts.

Revocable Living Trust

A revocable living trust lets you stay in control of your assets during your lifetime. You can change or dissolve it at any time. Because it’s flexible, this type of trust is the most common. However, assets in a revocable trust are still considered part of your estate for tax purposes.

Irrevocable Living Trust 

An irrevocable living trust cannot be changed once it’s created. By giving up control of the assets, you may reduce estate taxes and protect assets from certain creditors. This type of trust often works best for people with significant wealth or specific tax-planning needs.

The cost of creating a living trust can vary widely depending on how you set it up.

• Online services: Typically range from $100–$5001 and are best for straightforward estates.
• Attorney-drafted trusts: Can cost $1,000–$4,0001 or more, especially if your estate is complex or you need custom tax planning.
• Ongoing costs: Updating the trust over time may add additional fees.

While the upfront cost may be higher than writing a will, the savings in probate fees and time for your beneficiaries can outweigh the initial expense.

While a living trust can simplify estate planning, it usually doesn’t create significant tax savings. In general, here’s how assets are handled:

• Revocable trusts: Assets remain part of your taxable estate. You’ll still pay income and estate taxes as if you owned them outright.
• Irrevocable trusts: Assets are removed from your estate, which may help reduce estate taxes. However, you give up control once they’re transferred.

Either way, tax rules can be complex, and the impact depends on your situation. It’s best to review options with a tax professional before deciding which type of trust is right for you.

Creating a living trust can be a smart move for people who want more control over how their assets are handled. Keep these points in mind:

• A living trust helps your heirs avoid probate and keeps your estate private.
• Revocable trusts let you stay in control but don’t reduce estate taxes.
• Irrevocable trusts can lower taxes but require giving up control of assets.
• Costs for creating a living trust range from a few hundred dollars online to several thousand with an attorney.
• A living trust works best for homeowners, families, or people with multiple assets.

A living trust can give you greater control, keep your estate private, and save your loved ones time by avoiding probate. While not everyone needs one, it can be a valuable tool for homeowners, families, and people with multiple or complex assets.

If you’re considering a living trust, Ethos makes it easier to take the first step. Many of our life insurance policies come with access to free estate planning tools, including resources to help you create a will or trust. That way, you can protect your family and simplify your planning in one place. Get started today.