What Is a Living Trust?

A living trust is simply a trust that is created while the grantor is alive. They are sometimes called “inter vivos" trusts (Latin for trusts “among the living"). This contrasts with testamentary trusts, which are created in a grantor's will and therefore do not exist until the grantor dies.

A trust is a legal arrangement in which a grantor (sometimes referred to as 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 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. This is true for living trusts, and 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 they create. 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, and 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 (1) checking if a will is valid when one exists and (2) distributing a person's property (their “estate") when they die. Depending on the complexity of the estate, the probate process can be long and expensive. By transferring property into an RLT, those assets avoid probate when the estate owner dies.
  • Protecting Privacy. Probated wills are public records, which means anyone can go to the probate court and look at the will. The same is not true for an RLT. Assets can be discreetly transferred into the RLT and, by avoiding probate, the assets are shielded from prying eyes.
  • Protecting Beneficiaries. An RLT can be used to protect vulnerable beneficiaries. Trust beneficiaries might include minor children, an incapacitated loved one, or simply 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 specializes in maintaining a real estate portfolio. You can increase the value of the trust property, spare yourself the hassle of having to manage it, and still retain ultimate control.

Irrevocable Living Trust (ILT)

An irrevocable trust cannot be changed without the beneficiary's consent once it is created. The grantor relinquishes all ownership and control over the trust assets. Though this limitation may be unattractive to some grantors, sacrificing the power to change the trust comes with some advantages that do not exist with an RLT.

  • Asset Protection. Because an ILT transfers complete ownership and power from the grantor to the trust, the trust assets are protected from the grantor's creditors. You can also use an ILT to segregate assets away from marital property, thereby protecting them from an ex-spouse in the event of a divorce.
  • Reducing Estate TaxesYou can reduce your taxable estate by transferring assets into an ILT. However, because the federal estate tax exemption is currently set at approximately $12 million and increases each year, this ILT perk does not benefit most people. A few states also tax your estate when you die, so be sure to check for estate tax exemptions at the state level. For a particularly inventive way of reducing a married couple's estate taxes, see A-B Trusts: The Tax-Saver.

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

Establishing the Trust Terms

The terms of a trust are set out in a "trust agreement," "declaration of trust," or other trust document. The specific requirements of this document are governed by state law. Therefore, a local trust or estate planning attorney can be very helpful here too.

In general, a living trust document will:

  • Explain the purpose of the trust
  • Identify assets to be transferred to 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 how assets should be distributed 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 if the trust document does not make it clear.

Cost of Creating and Maintaining a Living Trust

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


Depending on the complexity of your estate, you may even be able to set up a revocable living trust yourself. For more on this, see Make Your Own Living Trust and Do I Need a Lawyer for a Trust.

If you decide to try to set up an RLT on your own, it is still wise to have an attorney review your work to make sure it is a well-formed and valid legal document. You should not try to set up an ILT without speaking with a qualified attorney or financial advisor.

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, each time you transfer an asset from your estate into a trust, you will need to prove that you own the asset and transfer 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 yourself, the peace of mind an attorney can provide may be well worth it.

Filing, Transfer, and Maintenance Fees

You will likely encounter filing fees when first creating your living trust and when transferring property into the trust. These fees depend on the state you create the trust in, as well as on the kind of property you choose to transfer.

You should also consider how your trustee will be compensated. Often, trustees are compensated with a cut from the trust income. If you hire a trust company to manage the trust for you, their fee will likely be a fixed percentage of the total assets being managed.

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

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

Either way, any assets you own that are not put into your living trust remain part of your estate. Without a will instructing how to distribute this remaining property when you die, it will be distributed 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, you might also consider creating a "pour over will." This kind of will "pours" what remains of your estate into a designated trust when you die. Note that because un-transferred assets are still part of your estate at death, they must still go through the probate process before pouring into the trust. Not all states recognize pour-over wills, so be sure to check your state's laws.

Need Help Setting Up a Living Trust?

Living trusts are popular estate planning tools. Depending on your estate planning goals, this kind of arrangement may be right for 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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