Have you ever seen a TV show in which a living trust is dramatically unsealed? Probably not. Living trusts usually don’t make fodder for great drama because they are typically undertaken precisely to avoid the messy, lengthy probate process. In probate, a county court determines whether or not a last will and testament is valid, and, if not, how the deceased person’s assets should be distributed.
In the case of a living trust, the contents are not made public unless the creator of the trust or his or her beneficiaries choose to make it so. It may not be as exciting as a soap opera cliffhanger, but a properly executed living trust does make for a sound way to pass on real estate, personal items, and other assets.
The document is a private one. To understand why, it’s important to first understand what a living trust is and what it does.
Overview of Living Trusts
A living trust is a legal entity created to protect assets on behalf of another person. The person who creates and funds the trust is known as the grantor, and the person or people who manages the contents of the trust is the trustee. The grantor and the trustee may be the same person. In the event there is more than one trustee, they are known as co-trustees. The trustee or co-trustees are the legal owners of all that has been placed in the trust, even if the grantor is still alive.
Sometimes a co-trustee is a temporary substitute, and then may make decisions or take action only with the permission of the other trustee or trustees, but sometimes the language of the trust allows a co-trustee to make decisions by his or herself. This is usually the case when siblings or parents are co-trustees.
The person who receives the trust is known as the beneficiary. Usually, the beneficiary is the child or children of the grantor. A beneficiary can also be a charity or nonprofit organization; in the event the grantor chooses a non-person as the beneficiary, tax laws usually leave the income untouched.
How They Differ From Other Estate Planning Documents
A living trust is different from a revocable trust. Revocable trusts may be changed or invalidated by the grantor, without the consent or input of the beneficiary or beneficiaries. The assets in a revocable trust only becomes the property of the beneficiaries after the grantor dies. Living trusts, on the other hand, cease to exist once the assets within them are validly distributed to the beneficiaries in accordance with the grantor’s wishes.
The specific laws regarding trusts differ by state and potentially even county, so the assistance of an attorney is important to ensure that a trust is validly executed.
How Do They Protect Privacy?
The creation of a living trust is not only an organized and safe way to pass on assets—this form of estate planning also protect the privacy of the grantor, the trustee, and the beneficiary. A living trust is also known as an “inter vivos,” which is Latin for “between the living” or “among the living.”It indicates that the grantor has made his or her wishes about all assets—real estate, bank account contents, investments, etc—clear while still alive. The creation of a living trust also assumes that the beneficiary will accept the bequest. In the event a grantor makes such decisions while near death or thought to be near death, the bequest is known as a “gift causa mortis.”
Since the decision of the grantor to manage his or her estate is made manifest in this manner—usually with the assistance of an attorney, validated by witnesses, and agreed upon by the beneficiary or beneficiaries—it’s a legally valid way to avoid probate. Unlike in the case of an unclear will of questionable validity, there is no need for an impartial judicial process to discern the legal status of the wishes of the grantor.
When probate takes place, wills are, as part of the process, entered into public record. This is what makes them available to the media and general public. In the case of living trusts, however, since they generally don’t see the court system, they remain private.
Even if probate does not take place, wills must, by law, be filed with local district or probate court in some states. At that point, the contents of the will become public, just as if probate is taking place.
Exactly How Private Are They?
Living trusts need not be filed with courts, so the details of them remain private unless the involved parties choose to release information. However, there are other ways certain tidbits of information in and about a living trust might leak out.
In some states, it is the law that the trustee or co-trustees must release at least a copy of the beneficiaries if they file a request for it. Even then, depending on the state, only the language of the trust directly involving the beneficiary is shown. However, other states release the foundation documents of the entire trust. Other states require that the trustee or co-trustees notify immediate relatives about the details of the trust, perhaps including a copy of it in its entirety.
In addition, lawsuits, and the discovery process which accompanies them, can make the foundation documents of a trust a public matter. Those who may have thought they stood to inherit, but did not, are allowed to file suit. Civil court is different from probate court, but the foundation documents of the trust will likely be entered into evidence and public record as part of the proceedings. However, if the living trust has been carefully and validly prepared, potential lawsuits can be quashed before they begin.
Finally, keep in mind that real estate records are public. If the trust owns real estate, documentation will reflect that, but if it validly passes into the name of individuals, the deed will update as well.