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What is a Living Trust?

By Sherry Holetzky
Updated May 16, 2024
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A living trust, not to be confused with a living will, is a legal instrument intended to ensure that a person's property is dispersed according to his or her wishes upon death. It may also include one's wishes concerning who should act as a guardian for any minor children. A living will, on the other hand, is a legal document that describes which types of medical treatment you wish to receive, or not receive, should you become incapacitated through illness or injury.

With a living trust, a person actually transfers ownership of his assets to the trust and then selects a trustee to administrate it. The trustee may be a family member or friend, an attorney, an establishment such as a law firm, or the the original property owner. In the latter scenario, the owner names someone to succeed him as the trustee upon his death.

A correctly prepared and appropriately funded living trust can help your loved ones avoid probate, because your assets are technically no longer yours; they are owned by the trust. Only items that are in your name will be subject to probate. To ensure that a living trust is properly "funded" you must make sure that all property has actually been transferred out of your name and into the trust. If not, the living trust is void and the state controls the distribution of your property and also decides who raises your children.

As is the case with so many issues involving money, there are some unscrupulous individuals and companies that attempt to sell living trusts or do-it-yourself trust kits, so proceed with caution. They hold seminars, make cold calls, and send out unsolicited mailings attempting to sell you their services, even though what they offer may not be of any value to you. Many states disallow the sale of a living trust by anyone other than an attorney, so make sure the person or company is licensed and competent to provide such a service. Also, be aware that state laws differ and what applies in one state may not apply in another.

A living trust can be an advantageous tool when properly implemented, but may actually cost your or your loved ones a lot of money if not correctly executed. Do your homework before hiring someone to prepare a living trust for you, and make sure your assets are properly transferred. Estate planning, including preparing a living trust, is not something most people enjoy thinking about or doing. However, the peace of knowing that your family will be taken care of if something happens to you makes it well worth the time and energy it takes to do it right.

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Discussion Comments
By cupcake15 — On Mar 03, 2011

Sneakers41 - I also think that many wealthy people that have considerable assets look to a irrevocable living trust so that not only do they get the tax savings but the trust makes it very difficult for anyone to contest it upon death.

Many people fight over money and what they feel they are entitled to and a will can be contested but it is much harder to contest an irrevocable living trust.

You would have to proved fraud or incompetence on behalf of the trustor which is very difficult to do.

By sneakers41 — On Mar 01, 2011

Entrepreneur - I didn’t know that. I just wanted to add that a revocable living trust offers you the best flexibility because you can change the contents of the trust and add additional assets throughout the course of your lifetime.

However, an irrevocable living trust cannot be amended at all. I would be very careful setting up an irrevocable trust because if you change your mind you will not be able to amend it. You essentially lose control over the assets for the rest of your life because you can no longer use income from the assets for support because your trust now owns the assets.

The one advantage of an irrevocable living trust is that the asset is no longer a part of your estate for tax planning purposes so it is a good vehicle to reduce tax liabilities from the estate.

By entrepreneur — On Dec 15, 2010

A living trust is also known as "inter vivos trust" which is latin for "between the living"

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