What Is a Living Trust?

A grantor creates a living trust while the grantor is alive. They are sometimes called "inter vivos" trusts (Latin for trusts "among the living"). This contrasts with testamentary trusts. A testamentary trust is created in a grantor's will. Therefore, they only exist when the grantor dies.

A grantor creates a living trust while the grantor is alive. They are sometimes called "inter vivos" trusts (Latin for trusts "among the living"). This contrasts with testamentary trusts. A testamentary trust is created in a grantor's will. Therefore, they only exist when the grantor dies.

A trust is a legal arrangement in which a grantor (sometimes called the settlor or trustor) transfers property to a trustee to be managed for a beneficiary. The trustee technically owns the transferred property. However, they are constrained by a fiduciary duty to manage the trust assets. The trustee must manage the trust productively and responsibly for the beneficiary's benefit.

This article will discuss some pros and cons of including a living trust in your estate plan.

Benefits of a Living Trust

Trusts can be revocable or irrevocable. The pros and cons depend on the type of living trust you create.

Revocable Living Trust (RLT)

The grantor of a revocable living trust reserves the power to change or revoke the terms of the trust. Even though the trustee holds legal title, the grantor retains some control over the trust assets. In many cases, the grantor is the trustee.

The flexible nature of revocable living trusts (RLT) is attractive to grantors. These kinds of trusts are far more common than irrevocable living trusts (ILT).

Advantages of an RLT include:

  • Avoiding probate: This is the most commonly cited reason for having an RLT. Probate is the court-supervised process of checking if a will is valid when one exists and distributing a person's property (their "estate") when they die. Depending on the complexity of the estate, the probate process can be time-consuming and expensive. By transferring property into an RLT, those assets avoid probate when the estate owner dies.
  • Protecting privacy: Probated wills are public records. This means anyone can go to the probate court and look at the will. The same is not true for an RLT. A grantor can discreetly transfer property into the RLT. Those assets avoid probate and are shielded from prying eyes.
  • Protecting beneficiaries: An RLT can be used to protect vulnerable beneficiaries. Trust beneficiaries might include minor children, a loved one with special needs, or someone incapacitated. You can also use a trust to protect assets from a family member you do not trust to manage assets responsibly. An RLT allows these individuals to benefit from the assets without giving them control.
  • Asset management: RLTs allow grantors to pool assets for efficient and productive management. For example, a grantor can pool real property into a trust and delegate management to a trustee who maintains a real estate portfolio. You can increase the value of the trust property. You can spare yourself the hassle of managing the property and retain ultimate control.

Irrevocable Living Trust (ILT)

An irrevocable trust cannot be changed without the beneficiary's consent once created. With this type of trust, the grantor relinquishes all ownership and control over the trust assets. This limitation may be unattractive to some grantors. The trust comes with other advantages unavailable with a revocable trust. Life insurance policies often fund ILTs.

Advantages of an ILT include:

  • Asset protection: An ILT transfers complete ownership and power from the grantor to the trust. The trust assets are protected from the grantor's creditors when the assets are in the name of the trust. You can also use an ILT to segregate assets away from marital property. This segregation protects them from an ex-spouse in the event of a divorce.

For many people, the costs of an ILT outweigh the benefits. A trust or estate planning attorney can help you decide if an ILT is right for you.

Establishing the Trust Terms

The "trust agreement," "declaration of trust," or other trust document outlines the terms of a trust. State law governs the specific requirements of this document. Therefore, a local estate planning attorney can be beneficial here, too.

In general, a living trust document will:

  • Explain the purpose of the trust
  • Identify assets for the trust
  • Name beneficiaries
  • Name a trustee and, sometimes, a successor trustee in case the first cannot or chooses not to perform that role
  • Explain the trustee's rights, powers, and duties
  • Explain the plan for distributing assets to beneficiaries
  • Explain how the trustee will be compensated

A trust agreement should also specify whether the trust is revocable or irrevocable. In many states, a trust is considered revocable by default. The trust document must clarify that the grantor intends to create an irrevocable trust.

Cost of Creating and Maintaining a Living Trust

Many people associate trusts with extreme wealth. In reality, you do not need a multimillion-dollar estate to use a living trust, particularly a revocable living trust.


Depending on the complexity of your estate, you can set up a revocable living trust yourself.

If you decide to set up an RLT independently, having an attorney review your work is wise. Getting an attorney to review your legal documents ensures they are well-formed and valid. It would be best if you did not set up an ILT alone. Speak with a qualified attorney or financial advisor who can help.

Hiring an Attorney

Alternatively, you may feel more comfortable letting an attorney prepare everything for you. They may charge a flat or hourly fee.

Remember, you must prove ownership when transferring an asset from your estate into a trust. You must show that you own the asset and the right to transfer the title.

Setting up and managing living trusts can involve a great deal of paperwork. This is one reason why living trusts are more complicated than wills. If you do not feel confident preparing a trust, hire an attorney. Working with an attorney can bring great peace of mind.

Filing, Transfer, and Maintenance Fees

You will likely encounter filing fees when first creating your living trust. Transferring property into the trust may also come with costs. Fees depend on the state where you create the trust. The kind of property you choose to transfer also influences the fees.

It is wise to consider trustee compensation. Often, trustees receive payment from a cut from the trust income. If you hire a trust company to manage the trust, their fee will likely be a fixed percentage of the total assets under management.

Even with a Living Trust, You Should Still Have a Will

Even if your estate plan features a living trust, you should consider having a last will and testament. It may be a simple document that leaves "everything you own" to a specific person. Alternatively, it may be a complicated document that distributes your estate to multiple parties.

Either way, assets not put into your living trust remain part of your estate. Without a will instructing how to distribute this remaining property when you die, distribution proceeds according to your state's intestacy laws. These laws may or may not align with your wishes.

If you create a living trust for estate planning purposes, consider creating a "pour-over will." This will "pours" what remains of your estate into a designated trust when you die. Untransferred assets are still part of your estate at death. Consequently, they must still go through the probate process before pouring into the trust. Not all states recognize pour-over wills. Be sure to check your state's laws.

Along with a will, your comprehensive estate plan should include:

Need Help Setting Up a Living Trust?

Living trusts are popular estate planning tools. Depending on your estate planning goals, this arrangement may suit you. If you would like help setting up or managing your living trust, a local estate planning attorney can provide valuable legal advice.

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