A Beginner's Guide to Living Trusts: Everything to Know

There are many reasons to consider living trusts as a beneficial estate planning device. Reducing estate taxes and having additional control over when and how assets are transferred to beneficiaries are just two of them.

People also use them to manage their assets while they are alive and take advantage of the other benefits. Living wills can help keep your estate out of probate. It can also help ensure you are taken care of during your lifetime in the event you become mentally or physically incapacitated.

Read on to discover why creating a living trust might be a good addition to your estate plan.

What Is a Living Trust?

A living trust is an estate planning document you create that will transfer assets to your trust which will be transferred to your beneficiaries after you pass on.

Unlike a will, which takes effect upon your death, a living trust takes effect once you have signed the document. Your trust becomes the owner of your property and the trustee you designate will disburse your assets to your beneficiaries at the time of your death.

Types of Living Trusts

Living trusts can be either revocable or irrevocable.

Revocable trusts can be changed or dissolved prior to your death. This is important since it allows you to change or add beneficiaries. You can also add or remove property from the trust and change the name of successor trustees.

Irrevocable trusts cannot easily be changed or dissolved. Changes often need all the beneficiaries to agree and this can sometimes be difficult to obtain. Irrevocable trusts are often used to protect assets against taxes and creditor claims.

Who Should Be Your Trustee?

If you create a revocable trust, it makes sense to name yourself as the trustee provided you don’t have a health concern that may make your incapacitated. However, you can also name yourself as trustee and name a successor trustee in the event you are no longer able to act as trustee.

If you create an irrevocable trust, it’s advisable to name someone other than yourself as the trustee. One of the benefits of living trusts that are irrevocable is that they can help protect your assets from creditors. Naming someone other than yourself as a trustee can provide weight to show that the trust wasn’t created for less than ethical purposes.

Finding a trustee to name should be well thought out. Picking someone with financial experience who can work well with your beneficiaries is essential.

The person you name doesn’t have to be a lawyer or financial adviser, but they need to be someone who knows how to get advice on issues that arise when they need help, such as with estate taxes and property transfers.

How Are Beneficiaries Affected?

Normally, when a person creates a will, the named beneficiaries inherit as soon as the estate gets disbursed. This is usually a short time after your death.

With a living trust that gets managed by a trustee, beneficiaries can benefit at whatever point your trust indicates. So, for instance, if you would like for a child or grandchild to inherit when they become a particular age or after they complete college, you can do that.

Or, a living trust can also be set up to disburse assets to beneficiaries over time, rather than as one lump sum.

Living trusts can live on for as long as there are trust assets. So you can set up beneficiaries, such as your children, to use assets during their lifetime, while the trust retains ownership. By doing so, you can ensure property and other assets remain available for use by future generations.

Benefits of Living Trusts

There are benefits to both types of living trusts. The wording in the trust will dictate your right to use the property while you are alive. But you do lose management control when you create an irrevocable trust.

Your loss of control in an irrevocable trust comes with some benefits. Your estate taxes can be lowered and the assets can be protected against claims from creditors. It can even protect the assets from a spouse during a divorce.

How To Do a Living Trust in South Carolina?

1. Define Your Estate Planning Goals

Before you begin drafting any documents, take time to consider your overall estate planning objectives. What do you want to achieve with your assets? Do you have specific beneficiaries in mind? Are there any minor children or individuals with special needs you need to provide for? Do you want to minimize taxes or protect assets from creditors? Clearly defining your goals will help you and your attorney determine if a living trust is the right tool for you and what type of trust best suits your situation.

2. Inventory Your Assets

Make a comprehensive list of all your assets. This includes tangible items like real estate (your home, vacation properties), vehicles, and valuable personal property (jewelry, art), as well as intangible assets like bank accounts, investment accounts (stocks, bonds, mutual funds), life insurance policies, and business interests. Knowing what you own is crucial for determining which assets should be placed into the trust.

Choose the Right Type of Trust

While this guide focuses on living trusts, it’s important to be aware that there are different types of trusts, each with specific purposes. The most common type of living trust is a revocable living trust, which allows you to retain control and make changes during your lifetime. Irrevocable trusts, on the other hand, are generally unchangeable once established and are often used for specific tax planning or asset protection strategies. An estate planning attorney can help you determine which type of trust aligns with your goals.

4. Select a Trustee and Successor Trustee(s)

As the grantor, you will typically serve as the initial trustee of your revocable living trust. However, you must carefully select one or more successor trustees. This person or institution will manage and distribute your assets according to your instructions if you become incapacitated or after your death. Choose someone you trust implicitly, who is financially responsible, and who can communicate well with your beneficiaries. It’s often a good idea to name at least one alternate successor trustee.

5. Identify Your Beneficiaries

Clearly identify who will receive your assets from the trust. You can name primary beneficiaries and contingent beneficiaries (who will receive assets if the primary beneficiaries predecease you). Be precise in your descriptions to avoid any ambiguity or disputes.

6. Draft the Living Trust Document

This is the legal document that formally creates the trust. It will outline your wishes regarding asset management and distribution, name your trustee and successor trustees, and specify your beneficiaries. While online resources and templates exist, it’s generally recommended to have an attorney draft this document to ensure it complies with South Carolina law and accurately reflects your complex intentions. South Carolina law states that a trust must be in writing if it concerns real property. While oral trusts for personal property are permitted, they require clear and convincing evidence.

7. Sign and Notarize the Trust Document

Once the trust document is drafted, you, as the grantor, must sign it. While South Carolina law does not strictly require witness signatures or notarization for a valid revocable trust, it is standard practice and highly recommended to have the document notarized. If you appoint someone other than yourself as the initial trustee, they should also sign to indicate their acceptance of the role.

8. Fund the Trust

This is a critical step and often overlooked. For a living trust to be effective, you must transfer ownership of your assets into the name of the trust. This is called “funding” the trust. Simply creating the trust document is not enough. Assets that typically go into a living trust include:

Real estate (by changing the deed to reflect the trust as the owner)
Bank accounts
Investment accounts
Business interests
Valuable personal property

Assets like retirement accounts (e.g., 401ks, IRAs) and life insurance policies typically have designated beneficiaries and are often not placed directly into the trust, though the trust can be named as a contingent beneficiary. Your estate planning attorney can guide you through the process of re-titling assets to ensure they are properly funded into your trust.

9. Review and Update Periodically

Life circumstances change, and your living trust should evolve with them. It’s crucial to review your trust regularly, typically every three to five years, or whenever significant life events occur, such as:

Marriage, divorce, or remarriage
Birth or adoption of children
Death of a beneficiary or trustee
Significant changes in your assets or financial situation
Changes in state or federal tax laws

Regular reviews ensure your trust remains up-to-date and accurately reflects your current wishes. Revocable trusts can be amended or restated (meaning a new trust is created that supersedes the old one) to reflect these changes.

Discuss Your Estate Planning Options

Schedule an appointment to talk to your lawyer about living trusts and estate planning options that are available to you. No matter what the size of your estate is you should have an estate plan in place.

A Beginner’s Guide to Living Trusts: Everything to Know