What Does a Living Trust Do?

What is a living trust?

A living trust is a legal document that holds your assets during your lifetime and allows them to be distributed to the people you choose upon your death. Most living trusts are revocable, meaning you can change or cancel them at any time. To more easily understand how a living trust works, think of a trust as an empty box. You can put your assets into this box, including financial accounts and real estate. During your lifetime, you control the box and can use, sell, or spend its contents.

Upon your passing, the person you've named as successor trustee takes the box and begins carrying out the instructions in your trust document. This includes distributing the contents of the box to the beneficiaries you've chosen.

Living trusts are one type of trust within a broader category of estate planning tools. The three main types include revocable living trusts (the focus of this article), irrevocable trusts, and testamentary trusts. Irrevocable trusts cannot be changed once created, but they offer benefits like asset protection from creditors and potential tax advantages. Testamentary trusts are created through a will and only take effect after your death, which means they don't avoid probate the way a living trust does. Special-purpose trusts, such as special needs trusts for beneficiaries with disabilities, serve more targeted goals and typically require specialized legal guidance.

What is a living trust used for?

Like a will, a living trust is a way of bequeathing money and property to the people you choose. Here are some reasons you might want a living trust instead of just a will:

• Getting inheritances distributed more quickly. Property that passes through a will can't be distributed until after probate, a court-supervised process that averages 16 months and costs 3–8% of an estate's value. Assets in a living trust skip probate entirely and can pass to beneficiaries much faster.
• Avoiding probate in multiple states. If you own vacation homes or other property in multiple states, a living trust can avoid the expense and hassle of having a separate probate proceeding in each state where you own property.
• Privacy. Probate is a public court proceeding, meaning anyone can access details about your estate and beneficiaries. Trusts remain private documents.
• Planning for incapacity. If you lose your mental capacity, the successor trustee can step in and manage the assets in the trust for you. As a practical matter, the authority granted to a trustee may be more readily accepted by outsiders than that granted under a standard power of attorney.

A living trust is usually accompanied by a "pour-over will" that addresses any probate assets that weren't included in the trust.

Living trust vs. will: What are the key differences?

Both living trusts and wills let you specify who inherits your assets, but they work very differently. A will only takes effect after your death and must go through probate before your beneficiaries receive anything. A living trust, on the other hand, takes effect as soon as you create and fund it, allowing assets to transfer immediately upon your passing without court involvement.

Privacy is another major distinction. Wills become public record once they enter probate, meaning anyone can look up what you owned and who inherited it. Living trusts remain private documents that don't get filed with any court. For families who value discretion or have complex situations, this privacy can be significant.

When it comes to cost, wills are generally cheaper to create; often, a few hundred dollars with an attorney or less with an online service. Living trusts require a larger upfront investment, but you may recoup those costs by avoiding probate fees and court expenses later. Trusts also tend to be harder to contest than wills, since they're active legal arrangements rather than documents that only come into play after death.

So which is right for you? A simple will may be sufficient if you have a modest estate, few assets, and straightforward wishes. A living trust makes more sense if you own property in multiple states, have significant assets, want to maintain privacy, or are concerned about a lengthy probate process. Many people use both: a living trust for their main assets and a pour-over will to catch anything that didn't make it into the trust.

How can you create and fund a living trust?

The document that establishes your living trust is called a living trust agreement. The agreement names a trustee (usually you) to manage the trust and a successor trustee who will serve if you become unable to. It also identifies the trust's beneficiaries and describes the living trust rules. The trust agreement must be signed according to your state's laws. Trusts can be complex, so it's best to get legal help rather than write a trust yourself.

How much does a living trust cost

Attorney-prepared living trusts typically cost between $1,000 and $3,000 for an individual, and $1,200 to $4,000 for a married couple. These costs vary based on your location, the complexity of your estate, and the attorney's experience. Online legal services offer a more affordable option, ranging from $100 to $500, though they may not provide the customization needed for complex situations like blended families or business ownership.

Beyond the initial document preparation, factor in one-time costs such as recording fees for transferring real estate into the trust (usually $50 to $150 per property) and any fees your bank or brokerage charges for retitling accounts. Ongoing costs for revocable living trusts are minimal, but many estate planning attorneys recommend reviewing your trust every three to five years—or after major life events—to ensure it still reflects your wishes.

Funding your trust

A living trust is only useful if you put money and property into it. You'll need to change legal ownership on all the property you want to place in the trust, including:

• Real estate
• Bank and investment accounts
• Personal property, like vehicles or valuable items

Trusts are more complicated than wills, and they may cost a little more to set up. But you'll save on probate court fees. And once your living trust is established, you'll have the peace of mind of knowing you have a solid estate plan in place.

What assets should not be placed in a living trust?

Not every asset belongs in a living trust. Retirement accounts like 401(k)s and IRAs should generally remain outside the trust because transferring them would trigger immediate income tax on the entire account balance. Instead, you can name the trust as a beneficiary if needed. Health savings accounts (HSAs) similarly lose their tax-advantaged status if transferred to a trust.

Life insurance policies in which you are the insured typically shouldn't be owned by your revocable living trust, since they provide no estate tax benefit and can complicate the policy. However, you can name the trust as a beneficiary so the proceeds are distributed according to your trust instructions. Vehicles can also be tricky; some states make it difficult to register a car in a trust's name, and doing so may create insurance complications.

As a general rule, assets that already have designated beneficiaries, such as retirement accounts, life insurance, and payable-on-death bank accounts, pass directly to those beneficiaries without going through probate. Placing them in a trust often adds complexity without providing additional benefit.

What are the disadvantages and limitations of living trusts?

While living trusts offer real advantages, they're not the right choice for everyone. The upfront cost is one consideration: where a simple will might cost $100 to $500 to prepare, a living trust typically runs $1,000 to $3,000 or more with an attorney. For smaller or simpler estates, those savings on probate costs may not justify the higher initial expense.

Living trusts also require ongoing effort. Every time you buy a new home, open a new investment account, or acquire significant property, you need to retitle that asset into the trust. If you forget to fund an asset, or simply don't get around to it, that property will go through probate anyway, defeating part of the trust's purpose.

A revocable living trust does not protect your assets from creditors. Because you retain control over the trust during your lifetime, creditors can still reach those assets if you're sued or face financial difficulties. Similarly, a revocable trust provides no tax benefits; the assets are still considered yours for income and estate tax purposes. If asset protection or tax savings are your goals, you'll need to explore irrevocable trusts or other strategies with an estate planning attorney.

Finally, the complexity of trusts means they're easier to set up incorrectly without professional guidance. An improperly drafted or unfunded trust can leave your family in a worse position than if you'd simply used a well-prepared will.

FAQs on what a living trust does

Does a living trust help me avoid taxes?

A revocable living trust doesn't avoid taxes. However, estates of up to $15 million per person are exempt from federal estate taxes as of 2026—an exemption made permanent under the One Big Beautiful Bill Act. Smaller estates can be subject to state estate taxes in 12 states and the District of Columbia.

Will a living trust protect my assets if I need Medicaid?

A revocable living trust doesn't protect your assets if you need to apply for Medicaid benefits for long-term care. If that's your goal, an estate planning or elder law attorney can help you set up a different type of trust.

Do I need a living trust if my assets already avoid probate?

You may not need a living trust if almost all of your assets are exempt from probate anyway. Many assets with designated beneficiaries, such as life insurance policies, retirement accounts, and pensions, go directly to your beneficiaries upon your passing without going through probate.

This article is for informational purposes. This content is not legal advice; it is the expression of the author and has not been evaluated by LegalZoom for accuracy or changes in the law.

Jane Haskins, Esq., contributed to this article.