Living Trust

What is a living trust?

A living trust (also called an inter vivos trust) is a legal arrangement created during a person’s lifetime to hold and manage assets for beneficiaries. The person who creates the trust (the grantor) transfers title of selected assets into the trust, names a trustee to manage them, and specifies how and when beneficiaries receive distributions. A living trust can take effect immediately and can help avoid probate, provide privacy, and provide a mechanism for managing assets if the grantor becomes incapacitated.

How it works

• The grantor executes a trust document (the trust instrument) that sets the rules, names beneficiaries, and appoints a trustee and a successor trustee.
• The grantor transfers ownership of chosen assets into the trust (re-titling them in the trust’s name).
• For a revocable trust, the grantor often serves as trustee during their lifetime and can manage trust property. A successor trustee takes over if the grantor becomes incapacitated or dies.
• At the grantor’s death, the trustee distributes trust assets to beneficiaries according to the trust terms—generally without probate for assets properly titled in the trust.

Assets that can (and can’t) go in a living trust

Common assets to place in a living trust:
* Real estate (homes, land, commercial property) — requires deed transfer
* Brokerage accounts, taxable investment accounts, stock and bond certificates
* Bank accounts (checking, savings), CDs, money market accounts
* Personal property (jewelry, artwork, antiques)
* Business interests (depending on structure and agreements)
* Life insurance policies and non‑qualified annuities (often by naming the trust as beneficiary)

Assets typically not retitled into a trust:
* Employer retirement accounts (401(k), 403(b)) and IRAs — you generally should not change ownership/title; instead, name the trust as beneficiary if appropriate, because retitling can trigger taxes and penalties.
* Certain accounts with beneficiary designations (payable-on-death or transfer-on-death) can be left with those designations, or the trust can be named as beneficiary depending on goals.

Types of living trusts

Revocable trust
* Grantor retains control and can amend or revoke the trust at any time while mentally competent.
* Offers management during incapacity and avoids probate for funded assets.
* Assets remain taxable to the grantor during life; it does not shield assets from creditors or most taxes.

Irrevocable trust
* Grantor gives up ownership and control of the assets placed in the trust.
* Provides stronger protection from creditors and can remove assets from the grantor’s taxable estate.
* Less flexible—changes are difficult and sometimes require court approval.

Many people use a combination of documents (a revocable living trust plus a pour-over will) so assets not funded into the trust still flow to it upon death.

Advantages

• Avoids probate for assets properly titled in the trust, which can save time and court costs and keep estate details private.
• Provides a built-in mechanism for managing assets if the grantor becomes incapacitated.
• Can allow for faster, more orderly distribution to beneficiaries.
• Irrevocable trusts can provide creditor protection and estate tax planning benefits.

Disadvantages

• Initial setup cost and legal complexity—may require an attorney to draft and fund properly.
• Funding the trust requires transferring titles; this can involve filing fees and administrative work.
• Revocable trusts offer limited creditor or tax protection while the grantor is alive.
• Irrevocable trusts require giving up control of assets and are inflexible once established.

Living trust vs. will

Timing and effect: A living trust takes effect immediately when created and operates during life and after death for funded assets. A will takes effect only at death.
Probate: Trust assets that are properly funded avoid probate. A will’s assets typically go through probate, which is public and can be slower and costlier.
Guardianship: A will can name guardians for minor children; a living trust generally does not.
Complexity and cost: Wills are usually simpler and less expensive to create; trusts can be costlier but may save time and money by avoiding probate.
Most estate plans include both a living trust (to hold major assets) and a pour-over will to catch any assets left out of the trust.

How to create a living trust

1. Decide whether you need a revocable or irrevocable trust based on your goals (control, creditor protection, tax planning).
2. Inventory assets you want in the trust and identify those you should not retitle (e.g., employer retirement plans).
3. Choose beneficiaries and determine distribution terms.
4. Select a trustee and successor trustee who will manage and distribute assets.
5. Prepare the trust document—ideally with an estate planning attorney to ensure legal validity and proper drafting.
6. Sign the document as required (notarization and witnesses as state law requires).
7. Fund the trust by re-titling assets into the trust’s name and updating beneficiary designations where appropriate.
8. Store the original document securely and inform the trustee of its location.

Typical cost

Legal fees to establish a living trust vary with complexity. Many straightforward revocable trusts range from modest flat fees to a few thousand dollars; more complex plans cost more. Expect variation by region and attorney expertise.

Common questions

Is a living will the same as a living trust?
* No. A living will addresses medical wishes and end‑of‑life care; a living trust deals with ownership and distribution of assets.

Do I still need a will if I have a living trust?
* Yes. A pour‑over will is commonly used to transfer any assets not funded into the trust into the trust at death and to name guardians for minor children.

Can I change a living trust?
* Revocable trusts can be amended or revoked while the grantor is competent. Irrevocable trusts are generally not changeable, except under limited circumstances.

How do I fund the trust?
* Transfer titles and ownership records to the trust (deeds for real estate, retitle accounts, change ownership of physical assets). Update beneficiary designations as appropriate. Proper funding is essential for the trust to achieve its goals.

Bottom line

A living trust is a flexible estate planning tool that can simplify asset management during life, provide for incapacity, and help beneficiaries avoid probate. Choosing between revocable and irrevocable forms depends on priorities—control and flexibility versus creditor protection and estate tax planning. Proper drafting and, crucially, funding of the trust are essential; consult an estate planning professional to ensure the trust meets your goals and complies with state law.