How to Create a Living Trust in Alabama

Establishing a living trust in Alabama can be a smart estate planning move that helps your loved ones avoid the time-consuming probate process after you’re gone. Unlike a will, a living trust allows your assets to transfer directly to your beneficiaries without court intervention, potentially saving them significant time and money. Alabama residents considering this option should understand that creating a living trust involves several important steps, including deciding the type of trust and which assets to fund it with. While the process may seem complex at first, breaking it down into manageable steps can make establishing your trust straightforward.

Consider consulting a financial advisor for help developing the right estate plan for your assets.

What Is a Living Trust?

A living trust is a legal document that lets you determine who will take ownership of your assets following your death. The trustee of a living trust is responsible for distributing the trust’s assets to the listed beneficiaries when the trust terminates.

Many people make themselves the trustee of their own living trust. However, if you do this, you must designate a successor who can act on your behalf after your death.

There are two types of living trusts: revocable and irrevocable.

• An irrevocable living trust is permanent. Even the creator of the trust cannot withdraw assets from the trust without the express permission of those named in the trust.
• A revocable living trust is more malleable. The creator of the trust can modify beneficiaries and add or remove items from the trust at their will. However, the creator of a revocable trust is still liable for the taxes on any items in the trust, whereas an irrevocable trust is taxed as its entity.

How to Create a Living Trust in Alabama

You can hire a professional attorney who specializes in estate planning, and they will go through the process of creating the living trust for you.

However, you can also set up a trust yourself in a few steps.

1. Determine the type of trust. If you’re married, it could be a good idea to use a joint trust so that you and your partner can each store property and assets in the same place. A single trust is a better fit for single individuals.
2. Choose property and assets for your living trust. You can choose just about any type of asset, from investments and annuities to physical property and land. You should also ensure you gather the relevant ownership paperwork for your assets.
3. Pick your trustee. You can choose yourself as your trustee, but you’ll also need to pick a successor who will take over when you die. The trustee ensures the proper distribution of your assets and property.
4. Create a trust document. It’s best to enlist a professional, but you can do it on your own.
5. Notarize your trust. Sign your living trust in front of a notary. It won’t be accepted if it’s not notarized by the state of Alabama.
6. Fund your trust. Physically fund your trust by adding the relevant assets and property to it. You can do this yourself or with a lawyer.

How Much Does it Cost to Create a Living Trust in Alabama?

The cost of setting up a living trust in Alabama varies significantly depending on the method you choose.

There are online websites you can use that will cost you no more than a few hundred dollars. Using a living trust attorney, on the other hand, may cost upwards of $1,000. Exact prices depend on the specific attorney or online program you go with.

While you can technically make a living trust on your own, there are certain risks with DIY estate planning. A lot of precise research is necessary, and it’s easy to overlook important details or get confused.

We recommend that you work with an estate planning attorney who specializes in forming trusts.

Why Should You Get a Living Trust in Alabama?

A living trust is a great way to ensure the correct distribution of your assets and property after your death.

The key perk of creating a living trust is that it lets your family avoid probate. This can be time-consuming, expensive and complex, whereas a living trust does not require probate.

Alabama is also one of many states that don’t use the Uniform Probate Code, making the probate process much more straightforward. For this reason alone, creating a living trust in Alabama may be a particularly smart idea.

Another reason why a living trust might be worthwhile is that it avoids conservatorship if you become incapacitated. This is because you’ll already have a trustee or a successor in place.

It’s also easy to leave property or assets to a minor in a living trust. Through this, you can easily designate that the trustee holds onto certain items or assets until the minor reaches a specific age.

Who Should Get a Living Trust in Alabama?

You don’t need to be wealthy to get a living trust. The benefits of a living trust apply to small estates in Alabama, as well, especially since the state doesn’t use the Uniform Probate Code.

That being said, Alabama does have a simplified probate process for estates less than $47,000 in size. ¹ In these cases, you might not need to bother with a living trust.

Putting together a living trust is often more expensive than formulating a will. Because of this, if your estate plan is fairly simple, a living trust may be more trouble than it’s worth.

Still, there are key differences between living trusts and wills.

Living Trusts vs. Wills

If you decide to create a living trust, you’ll likely still need a will to specify several instructions.

• What to do with property not placed in your living trust
• Name an executor
• Offer instructions on handling taxes and debts
• Establish guardianship for minors
• Select managers for children’s property

Living Trusts vs. Wills

Neither of these documents should be confused with a living will. A living will provides medical instructions for what to do should you become incapacitated.

Living Trusts and Taxes in Alabama

Creating a living trust is highly unlikely to affect your taxes, as Alabama has no estate tax or inheritance taxes. ²

The federal estate tax still applies, though, if your estate is worth at least $15 million. ³ If you have that large of an estate, then you will probably want to work with a professional to plan the distribution of your estate. Be sure to complete all necessary paperwork for the trust.

What Happens to Your Trust If You Move Out of Alabama

A trust that you make in Alabama will generally be valid in other states. That part is straightforward.

However, being recognized and working exactly the way you intended are two different things. Each state has its own laws governing trusts, taxes, spousal rights and trustee authority. Therefore, a document drafted for Alabama may not account for rules that apply in your new state. If you move, reviewing your trust with an attorney in the new state is one of the most important steps you can take to make sure it still does what you set it up to do.

Taxes

Taxes are one area where a move can quickly change things. Alabama has a relatively low state income tax, while some nearby states like Florida and Tennessee have no state income tax at all.

However, if you move to a state with higher rates or one that taxes trust income based on where the grantor lives, the trust and its beneficiaries could face a larger tax burden than you originally planned for. The federal tax treatment stays the same, but the state-level picture can look very different depending on where you land.

Spousal Rights

Spousal rights are another area where state lines matter. In Alabama, a surviving spouse has the right to claim an elective share of the estate. Other states have their own versions of this rule, and the amounts and conditions vary.

Community property states treat marital assets differently altogether, and a trust written under Alabama law may not account for how those rules apply. If your trust distributes assets in a specific way, a change in spousal rights law could create a conflict that surfaces only after one spouse’s passing.

Trustee Rules

Trustee rules can also differ from state to state. Some states place restrictions on who can serve as a trustee or require an out-of-state trustee to register, post a bond or meet other conditions. If your named trustee still lives in Alabama and you have moved elsewhere, the new state may not allow that person to serve without additional steps. This is the kind of issue that rarely comes up until it needs to, and it can slow down the administration of the trust at the worst possible time.

Avoids Probate

If you still own property in Alabama after moving, the trust can actually work in your favor. One of the main benefits of a living trust is that it avoids probate. This includes probate in states where you own real estate but no longer live.

Without a trust, your heirs could end up going through probate in two states, doubling the time, cost and paperwork required. However, this only works if the Alabama property was properly transferred into the trust before your death. If not, it goes through probate like any other asset.

A move does not mean you need to start over with a new trust. In most cases, an attorney in the new state can review the existing document and suggest amendments or additions to bring it into compliance with local law. That is a far simpler and less expensive process than creating a trust from scratch.

However, skipping the review entirely and assuming everything still works is where people run into trouble. This may sometimes be years later, when the trust is finally put to use. At that point, it is harder to fix the problems.

Bottom Line

Creating a living trust in Alabama could be a good idea, especially since the state does not use the Uniform Probate Code. A living trust can make the distribution of your property significantly easier for your family and friends after your death.

If you decide that a living trust is right for you, make sure it fits into your estate plan. An estate planning attorney can help you structure your living trust to meet your needs.

Tips for Estate Planning

• Estate planning can be complex, and it’s often a good idea to work with a financial advisor to make sure that you’re handling things correctly. 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.
• Don’t make the mistake of waiting until you’re too old to start planning your estate. By implementing an estate plan at a younger age, you’ll be adequately prepared for whatever happens.
• Make sure you take the time to educate yourself about all aspects of estate planning so that you can make one that works for you.

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