What is a Living Trust
A living trust is a trust created during a person’s lifetime to either save money on taxes or set up long term property management. Source
First of all, let’s start with an introduction to the basic legal terminology used in trusts. For further legal terminology check out our legal terminology glossary.
- Beneficiary – Anyone receiving a gift or benefiting from a will.
- Estate – When you die, all of your property becomes your “estate.” To put it another way, your estate is everything you own at the time of your death.
- Grantor – The person who creates the living trust. He or she decides what property to include and who the beneficiaries will be.
- Probate – Legal process of settling the state of a deceased person.
- Successor Trustee – The person who assumes control of the trust after the initial trustee dies or becomes unable to continue with his or her responsibilities. Once the successor trustee has assumed control, he or she will make sure your property is distributed to your beneficiaries according to the trust terms. Ideally, a successor trustee will be someone you know and trust.
- Trustee – The person or company that manages trust property on the beneficiary’s behalf. In most cases, the first trustee of a trust is the person who created it. You can name someone to act as a successor trustee after you are gone.
Advantages of a Trust
- Trusts can take effect immediately, and therefore can handle a number of circumstances during your lifetime that wills cannot. For instance, if you are seriously injured, a trustee may take over your finances until you are able to assume responsibility again.
- Assets that pass through trusts are generally not subject to probate proceedings; unnecessary delay, expense, and publicity can thus be avoided.
- One can usually change a trust without the formalities required for altering a will.
- Under certain circumstances, one can use trusts to obtain favorable tax treatment.
Disadvantages of a Trust
- Trusts are often more complicated to draft than a will. A poorly drafted trust can be nearly impossible to execute.
- To put your assets into a trust, you must make sure you change the legal name on the account to the trust’s name. Failing to do so may negate many of the benefits of having the trust.
- Appointing a guardian is traditionally done in a will. While there may be no legal requirement that a will be used to name a guardian, courts in your jurisdiction may be more comfortable with seeing the appointment in a will.
- Many professionals charge more in upfront fees to draft a trust.
Types of Living Trusts
There are three major types of living trusts. Each trust offers features and the table below gives at-a-glance comparisons of each type of trust.
|Irrevocable Life Insurance Trust|
|Revocable Living Trust|
|Special Needs Trust|
Check out our thorough comparison of an Irrevocable and Revocable Trust.