Answer Alert: What Are Individual And Joint Living Trusts?

Question: What are individual and joint living trusts and may a Notary notarize them?

The Answer:
A living trust is an estate planning tool. It is a legal document created to manage property before and after death. Persons who become incapacitated or disabled can have their assets and financial affairs managed by the trust. A named trustee, for example, would then manage the trust assets. Trusts can be revocable or irrevocable — that is, a trust can be set up so that it may be revised or cancelled, or so that it contains provisions that make it final and permanent.

Both last wills and testaments and living trusts are estate planning tools. However, there are notable differences between the two. For example, a will takes effect after an individual dies while a living trust takes effect during the individual’s lifetime (hence the terms last will and living trust). Furthermore, a will is subject to probate in court but a living trust is not. Since a will must be probated, it becomes public record. Because a living trust is not subject to probate, its provisions remain private. It can take more than a year to settle the disposition of assets under a will and the surviving beneficiaries incur court costs to probate the will. While a living trust is more expensive to create than a will, it avoids the costs and timelines for disposition of an individual’s assets upon death. A will may provide for a guardian of surviving minor children while a living trust does not.

Living trusts may be individual or joint. An individual living trust is set up to manage the assets of a single individual whereas a joint living trust combines the assets of a husband and wife into a single trust, governed by a single trust document.

When individuals create a living trust, they may additionally create a particular type of last will and testament — called a “pour over will” to supplement the living trust. When the living trust is created, the individual places individual assets into the trust, such as real property and funds in named bank accounts. The pour over will is executed to direct any assets not specifically in the living trust at the time of death to be distributed to the trustee of the trust. The will also can name a guardian for minor children.

Under the law of most states, a living trust must be acknowledged before a Notary or notarial officer authorized to take acknowledgments. In addition to the actual trust document itself, there are accompanying documents known as a “certification of trust” and “declaration of trust” that are used in various circumstances by the individuals creating the living trust. For example, when a borrower’s trust is involved in a mortgage loan transaction, the certification of trust must be acknowledged and recorded in the land records to establish the existence of the trust document.

This Answer Alert was concurred on by Bill Anderson, Vice President of eNotarization and Best Practices, and by Chuck Faerber, Vice President, Notary Affairs.

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