Okay, so the title of this post might be a little bit misleading. I could go on at length about living trusts and their benefits, such as privacy, probate avoidance, control of your estate after your death, etc. In fact I plan on doing so in future posts. But in this post I really just want to provide a brief analogy to try to help everyone understand what a living trust is.
I think of a living trust like a bucket that holds your stuff. Maybe not all of your stuff, but anything you put into it, like your bank account, your personal belongings, perhaps your house, etc. Your trustee holds that bucket of stuff. You might be your own trustee holding your own bucket, which really isn't all that different than just holding the stuff in your hands without the bucket. But here's the difference - if you become incapacitated or die, someone else (a new trustee) grabs the bucket and holds it for you, without having to involve the court, and then follows your instructions for what to do with the stuff that you've got inside the bucket.
If you're incapacitated, your instructions might say to pay your medical bills and to help your spouse and family maintain their standard of living. If you die (and as things currently stand we all will), then your trustee might hold your bucket of stuff and give it out according to your instructions all at once or over time. For example, your instructions might be for the trustee to hold onto the bucket of your stuff until your children reach a certain age, and once your children reach that age, the trustee takes your stuff out of the bucket and gives it directly to them. This is just one example of many, many ways to set up a living trust.
There's a lot more to all of this, including what can be some very important tax considerations, but hopefully this somewhat crude analogy is helpful. I'll be posting more on this subject in the near future.