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What's a living trust?

In order to understand what a living trust is, first you need to understand what a trust is in general terms. A trust is a special legal document that allows for the management of property for the benefit of others -- property that is typically surrendered to the ownership of the trust by the creator of the trust.

In many cases, a trust can be organized so that it goes into effect at the moment of an individual's death. In other cases, the trust is called a "living trust" and it goes into effect while the trust creator (or grantor) is still alive.

The living trust's terms and conditions are set forth within the trust document. This document is formally referred to as the "Declaration of Trust," and falls under the jurisdiction of local state laws. This point is important to keep in mind if you move from one state to another state.

The property contained in the trust is usually managed by a single person, known as the trustee, who does not necessarily benefit from the property him or herself. The trustee, however, is legally obliged to manage and/or distribute the property in exact accordance with the terms laid out in the trust document. If the trustee fails to follow through with this obligation, he or she may be held liable in court for those failures by the beneficiaries.

It is important to draft a Declaration of Trust for a living trust in accordance with local laws. Indeed, there have been many cases in California where a homemade trust was rendered inadequate in court, which would mean that the terms and conditions laid out by the grantor will not be adhered to. For this reason, it is best to have a trained trust attorney organize the particulars of a trust in order to ensure that it is valid and that it cannot be invalidated if it is challenged in court.

Source: FindLaw, "Living Trust Information," accessed March 16, 2016

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