How to Create a Living Trust in Delaware

Creating a living trust in Delaware is a strategic move for those seeking to manage their assets efficiently and ensure a smooth transition of their estate. A living trust is a legal document that places your assets into a trust for your benefit during your lifetime. It specifies how these assets should be distributed upon your death. Unlike a will, a living trust can help you avoid the often lengthy and costly probate process. This not only provides privacy, but it can also potentially reduce estate taxes. Delaware, known for its favorable trust laws, offers unique advantages, including strong asset protection and flexible trust management. Whether you’re a Delaware resident or considering establishing a trust in the state, understanding the steps involved is crucial.

For more help with your estate planning, consider creating a comprehensive plan with a financial advisor.

Creating a Living Trust in Delaware

Creating a living trust is pretty much the same process no matter what state you live in because it’s a legal document, and most states don’t have separate rules.

To create a living trust in Delaware, follow these steps.

1. Choose the type of trust. Many people prefer revocable living trusts over irrevocable trusts because they can retain control of their estate and remove assets at any time. They can also cancel the entire trust if they want.
   • If you are married, you’ll likely want a joint trust, though if it’s a marriage from later in life and you have separate assets, two single trusts may be more appropriate.
2. Identify the assets you want in the trust. Next, identify the assets you want to place in the living trust, then gather the relevant documents. These may include the following:
   • Bank accounts
   • Certificates of deposit (CDs)
   • Titles to your cars
   • Deeds to real property, like your home
3. Choose a trustee. The trustee will manage the trust’s assets. If you designate yourself as the trustee, you’d need to select a successor trustee.
4. Create the trust document. You can do this using online software or with the help of an estate planning attorney.
5. Execute the trust documents. Sign the document in front of a notary public.
6. Fund your trust by transferring assets to it. You can do this on your own, but the paperwork can be tricky, so you may want help from a lawyer or financial advisor.

What Is a Living Trust?

Like a will, a living trust is a legal document that designates who should receive property when the owner, or trust grantor, dies. However, unlike a will, a trust holds assets while the owner is alive.

The primary aim of a living trust is to avoid probate. This court process can take months or even years if the estate is particularly complex.

The grantor appoints a trustee to manage the trust’s assets. People commonly name themselves as the trustee, but when they do, they also need to name a successor trustee for when they die. If the distribution of your property is not to happen immediately after your death, the trustee will manage the assets for as long as necessary. This is also the case if the beneficiary has a disability.

You can fund a trust with various types of assets and physical property, including:

• Bank deposit products, such as savings accounts, money market or checking accounts
• Investments, such as stocks, bonds and mutual funds
• Certificates of deposit (CDs)
• Real estate property
• Life insurance policies

One thing you can’t transfer to a revocable living trust is a traditional individual retirement account (IRA). By law, an IRA must be in the name of a person. You can consult with a lawyer on what happens to any IRA account that you may have.

How Much Does It Cost to Create a Living Trust in Delaware?

The largest cost when setting up a living trust is attorney fees.

Depending on the lawyer, the cost can run to $1,000 or more. If you want to keep costs down, online programs are available for less than $100. Keep in mind, though, that you can run into plenty of pitfalls with DIY estate planning.

Beyond legal fees, there are other potential costs to consider when setting up a living trust. These may include fees for transferring assets into the trust, which can involve retitling property deeds or updating beneficiary designations.

Additionally, if your estate is particularly complex, you might incur costs for financial advisors or tax professionals to ensure the proper management of all aspects of your estate. It’s important to factor in these additional expenses when budgeting for your living trust.

Given the complexities and potential costs involved, consulting a financial advisor can be a wise step when considering a living trust in Delaware.

Why Get a Living Trust in Delaware?

One of the biggest benefits offered by a living trust is bypassing probate. Probate is the process by which a court determines how to treat your estate based on its interpretation of your will.

Because Delaware has not enacted a Uniform Probate Code, the process is considered lengthy. It can also be expensive, as lawyer fees add up. That said, the state offers a simplified probate process for estates valued at $30,000 or less.

Unlike wills, which become public record, a living trust remains private. This means that the details of your estate and the distribution of your assets are not public.

Additionally, a living trust allows you to maintain control over your assets while you are alive. You can make changes to the trust as needed to ensure your estate plan reflects your current wishes and circumstances.

A living trust provides flexibility in managing your assets. You can appoint a trustee to manage the trust on your behalf, which can be particularly beneficial if you become incapacitated. This ensures that your financial affairs will be handled according to your instructions and without the need for a court-appointed guardian.

Furthermore, a living trust can include specific instructions for managing and distributing your assets. This allows you to tailor your estate plan to your family’s unique needs.

Delaware Estate Tax

Delaware is known for its favorable tax laws, and a living trust can help you take advantage of these benefits.

While a living trust does not provide direct tax savings, it can minimize estate taxes. Additionally, Delaware’s asset protection laws can help protect your assets from creditors, providing an extra layer of security for your estate.

By working with a knowledgeable financial advisor for estate planning, you can ensure that you set up your living trust to maximize these benefits.

Who Should Get a Living Trust in Delaware?

Living trusts are not just for the wealthy.

You should consider a Delaware living trust if your net worth is more than $30,000 or if you own property in other states. It is also a convenient strategy if you simply want your estate to avoid the interference of the court.

Additionally, trusts are a good choice for people who want to provide for someone with special needs or delay the distribution of their estate until heirs are older. With a will, the distribution of an estate occurs once probate ends.

A living trust is also strategic if you are disinheriting someone or unequally spreading your wealth. It is harder to contest than a will.

Living Trusts vs. Wills

Wills are always recommended, whether you have a living trust or not. Together, the two can ensure that the distribution of your estate is according to your wishes, since you’ll likely leave something out of your trust.

A will also offer some benefits that a living trust won’t. For instance, you can state your preferred guardians for minor children and name an executor through your will. You can also use it to express the management of your debt and taxes.

The table below offers some information about what you can and can’t do with these two estate planning tools.

Living Trusts vs. Wills

Living Trusts and Taxes in Delaware

The Delaware estate tax was repealed on January 1, 2018, and the state has no inheritance tax either.

At the federal level, a living trust may help only very large estates, since the federal estate tax, also called the death tax, has an exemption of $15 million for individuals. ¹

Common Mistakes People Make With Living Trusts in Delaware

Not Funding the Trust

The most common problem with living trusts is not a legal error or a drafting issue. It is that the grantor does not fund them.

People go through the entire process of hiring a lawyer, signing the document and filing it away, but then they never transfer their assets into the trust.

Not Retitling Accounts

A living trust only controls assets that have been retitled in its name.

If your house, your bank accounts and your investment portfolios are still in your personal name when you die, the trust does nothing for them. They will require probate just as if the trust did not exist.

Not Updating after Life Changes

Failing to update the trust after major life changes is another frequent mistake. This can include several life events.

• Divorce
• Remarriage
• The birth of a child or grandchild
• The death of a named trustee or beneficiary
• Buying or selling a home.

Any of these can make the terms of a trust outdated or contradictory. A trust that names an ex-spouse as successor trustee or leaves assets to someone who has already passed away creates confusion and potential legal disputes that the trust was designed to prevent in the first place.

Not Adding a Will

Some people also assume that a living trust entirely replaces a will. It does not. Assets that they never move into the trust still need to go somewhere, and a will provides for them.

A will is also where you name guardians for minor children and an executor to handle anything outside the trust. Without a will alongside the trust, there are gaps that a court will have to fill on your behalf.

Naming a Successor

Choosing the wrong trustee or forgetting to name a successor is a quieter problem, but just as damaging. Some people name themselves as trustee, which is common and practical, but never designate someone to take over if they become incapacitated or die.

Others name a family member who is not comfortable managing money or making financial decisions under pressure. If no capable successor trustee is in place when necessary, a court may have to appoint someone. This is exactly the kind of outside involvement most people use a trust to avoid.

Beneficiary Designations

Beneficiary designations on financial accounts are another blind spot. This applies to several types of accounts.

• 401(k)
• IRA
• Life insurance
• Certain bank accounts and investment accounts

Each account must have a named beneficiary on file with the institution. When you die, those assets go directly to that person. The trust has no say in the matter, even if it spells out a completely different plan. If you set up a trust five years ago and never went back to check who is listed on those accounts, there may be a conflict that no one will discover until it is too late.

Most of these mistakes are not hard to fix when caught early. Reviewing the trust every few years, confirming that new assets have been properly titled and checking that beneficiary designations align with the overall plan can prevent problems that are much harder to resolve after someone has died.

A short annual review with a lawyer or financial advisor is a small cost compared to the legal fees and family friction that an outdated or unfunded trust can create.

Bottom Line

If you have a large or otherwise complicated estate, a living trust will help your heirs avoid probate in Delaware, which has not adopted the Uniform Probate Code. If the value of your estate is less than $30,000, however, a living trust is unnecessary, since there is a simplified process for small estates. For more help with your estate planning, consider hiring a qualified financial advisor to discuss the types of trusts you can access.

Estate Planning Tips

• A living trust is just one type of estate planning tool. To get comprehensive help with your entire estate, you may want to consider working with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
• You can also check out our vetted list of financial advisors who serve Delaware by seeing which firms we rank at the top.
• Review your estate plan every few years. You should also update it whenever you experience a life-changing event (such as the birth of a child or grandchild) or when Congress makes any changes to estate tax law. This will ensure that your plan reflects your wishes and goals.

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