Living Trust

What is a living trust?

True to its name, a living trust is a trust that goes into effect while you are still living and capable of managing your affairs. It allows you to make decisions about who should manage your assets in the event that you become incapacitated, as well as who should inherit your assets after you die.

Putting together a living trust can give you peace of mind that your affairs will be carried out according to your wishes, but that isn’t the only benefit. Trusts allow your assets to be dispensed without going through a probate court, which can save your heirs a substantial amount of time and money. Probate is also a public process, so using a trust can help keep the details of your estate private and out of the public record. 

Living trusts can be revocable or irrevocable. Revocable living trusts can be modified at any time and for any reason, and you also serve as both the grantor and the trustee, allowing you to maintain complete control over your assets while you’re still living. Irrevocable trusts, which are commonly created for asset protection or to reduce estate tax liability, are typically. much harder to modify without legal intervention.

FAQs

How is a living trust different from a will?

Both living trusts and wills are legal documents that allow you to dictate how your assets will be dispersed among family members, friends, or whomever else you choose. But they function a bit differently. Wills only take effect after your death, but trusts take effect immediately and allow you to appoint a person—sometimes called a successor trustee—to handle your affairs if you are still living, but incapacitated. Wills are also subject to a lengthy probate process, while trusts can sometimes bypass the probate court altogether.

Can you modify a living trust?

Revocable trusts can be modified—or revoked—at any time, but irrevocable trusts cannot. If you anticipate that your wishes may change down the road, it may be a better idea to create a revocable living trust so that you have the flexibility to modify it as your circumstances change.

Do I need a lawyer to help me make a living trust?

Trusts are somewhat complicated legal documents, so it can be a good idea to consult an estate planning attorney to help you put yours together. They can help you decide whether a revocable trust or an irrevocable trust best suits your needs, and also help you determine the best way to word your document so that your wishes are carried out exactly the way you intended.

Are there any tax benefits to using a living trust?

With a revocable living trust, you retain full control over your assets, so you are still responsible for paying taxes on your income and property. However, your estate planning attorney may be able to suggest ways you can draft your trust that will make it possible for your family members to pay less in estate taxes after you die.

Irrevocable trusts offer estate tax savings as well. This is because your assets are considered the property of the irrevocable trust, which minimizes the taxable value of your estate when you die. The tax implications of a trust can be tricky, however, so it’s recommended that you consult a legal professional to help you navigate your specific situation.