In many states, Living Trusts are a person’s key estate planning document. Living Trusts are created to hold assets during life and then dispose of those assets at death according to the person’s directions (here, we will call the person making the Living Trust the “Grantor.” Living Trusts thus operate much like a Will, but, unlike a Will, Living Trusts have the benefit of avoiding probate. This makes them common in states where it is favorable to avoid the probate process.
In order for a Living Trust to function as intended, it must be funded with the Grantor’s assets. In other words, those assets must be retitled in the name of the Living Trust so that the Trust owns them at death rather than the Grantor. This requires the Grantor not only to retitle real property, bank, and investment accounts, but also any business interests owned by the Grantor such as LLC interests or stock in an S corporation. When a Living Trust becomes the owner of S corporation stock, there can be resulting difficulties for the Grantor’s heirs and for the S corporation itself.