A living trust is an estate planning tool that involves a legal document called a trust. The trust, which can be either irrevocable or revocable, is drawn up while the trust maker is still alive. The grantor (another name for the person making the trust) designates a trustee who is responsible for handling the assets to benefit a named beneficiary. The purpose of a living trust is to allow the person to give assets to the recipient while avoiding probate proceedings. The trustee takes legal possession of the assets that go into the trust.
How Does a Living Trust Work?
The trustee of a living trust has a fiduciary responsibility to manage the trust responsibly to benefit the beneficiary as designated by the grantor. When the trust maker dies, the assets leave the trust and go to the recipient according to the grantor’s wishes. A living trust is different from a will, though, because it takes effect before the grantor dies and doesn’t have to be approved by the courts.
Are There Different Types of Living Trusts?
A living trust can be revocable or irrevocable.
- A living revocable trust allows the trust maker to be his or her trustee to control the assets in the trust. The grantor can change the rules and beneficiaries of the trust at any time and can even dissolve the trust if he or she wishes. In this case, the assets in the trust are part of the grantor’s estate and subject to estate taxes upon the grantor’s death.
- An irrevocable living trust requires the grantor to turn over the rights and control of the assets in the trust to the trustee. While the trustee becomes the legal owner, the grantor has the advantage of reducing the size of the taxable estate. Once the irrevocable living trust is formed, the beneficiaries are established, and the grantor cannot make significant changes.
What Are the Benefits of a Living Trust?
Living trusts give you three distinct advantages over a will as a trust maker.
- Living trusts let you avoid the expensive and time-consuming probate process.
- While living trusts are often more expensive to establish on the front end, they can save you significantly on court costs and fees.
- Living trusts give you more privacy. While a will becomes public record upon your death, a living trust does not.
Where Can I Get Help With a Living Trust?
The assets you’ve worked a lifetime to build deserve protection. Estate planning laws are complex, and mistakes can be costly. When you’re ready to set up a trust, contact a knowledgeable and experienced estate lawyer.