What Does a Living Trust Do? by Michelle Kaminsky, Esq.

What Does a Living Trust Do?

A living trust — sometimes called an inter vivos or revocable trust — is one of the most important documents you can prepare in your lifetime.

by Michelle Kaminsky, Esq.
updated December 02, 2020 · 3 min read

A living trust is an estate planning tool increasingly used by individuals and families as a way to pass property on while avoiding costs and delays associated with probate. 

Here are six things a living trust does:

1. Quickly Distributes Assets at Your Death

A living trust is funded by your assets such as property, bank accounts, stocks and bond accounts, and certificates that are transferred to the trust during your lifetime. Upon your death, these assets are distributed quickly and easily to your designated beneficiaries by your chosen representative, called a "successor trustee." Generally, no court action is involved.

Without a living trust, your estate may go through probate. The probate process can usually take six months to two years. Assets are usually frozen during this time, meaning nothing can be sold or distributed without the court and/or executor approval.

2. Does Not Go Through Probate

When you set up a living trust you transfer your assets to the trust, meaning the trust owns that property. This allows you to avoid probate on the property you've placed into the trust. This doesn't mean that you no longer have control of your assets, however. Since you are typically the trust's initial trustee, you still have complete control of your property. When you pass, your successor trustee manages the distribution of your assets, which means:

  • Your assets will be distributed to your heirs much faster, generally within weeks as opposed to months or years with a last will and testament;
  • Aside from paying off your debts, your family will not have to worry about probate and court costs;
  • Any out-of-state property escapes probate in that state as well. Without a living trust, if you own property in multiple states, your estate could be subject to multiple probates, each one according to the laws in that state.

3. May Save on Estate Taxes

If you have substantial assets, a living trust can also reduce federal estate taxes. In particular, joint living trusts designed for married couples can be especially effective in reducing or avoiding estate taxes.

In 2009, the estate tax exemption increased to $3.5 million each or $7 million per couple. In 2010, the estate tax will basically be eliminated for one year. Then, in 2011, the estate tax exemption will revert back to $1 million per person. A living trust can help a couple fully utilize their estate tax exemptions and reduce or avoid estate taxes.

4. Offers Peace of Mind

A living trust can give you the peace of mind of knowing your exact wishes will be followed upon your death and your family will be provided for quickly. If you have children or grandchildren, a living trust can prevent court control of minors' inheritances and ensure assets remain in trust until you want beneficiaries to inherit them.

5. Keeps Wishes Private

Unlike a will, a living trust is not public record. Accordingly, any and all transactions involved with a living trust, including distributions, are private both before and after your death.

6. Can Let You Keep Control of Your Affairs if Incapacitated

If you become incapacitated, your handpicked successor trustee can manage your affairs without court intervention; but if you dispute your incapacity, you can still retain control of your affairs by revoking the trust.

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Michelle Kaminsky, Esq.

About the Author

Michelle Kaminsky, Esq.

Freelance writer and editor Michelle Kaminsky, Esq. has been working with LegalZoom since 2004. She earned a Juris Docto… Read more