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LEGAL DICTIONARY

Living Trust

A living trust is a legal document used by individuals to manage their estate while they are still alive. The person creating this kind of trust is known as the trustor or grantor. They use these kinds of arrangements to store and distribute their wealth and assets to chosen beneficiaries.

Living trusts offer a highly popular way to plan the transfer of an estate to descendants because they are not subject to costly probate procedures. Therefore, knowing how they work can be an essential step to your estate plans.

How Does a Living Trust Work

When a living trust is set up, the trustor places their designated assets into the control of a trustee. In most cases, the trustee will usually be a bank or a financial institution that will manage the assets. However, they can also be individuals too and can even be the grantor themselves.

The trustee will have a fiduciary responsibility to distribute the assets to beneficiaries according to the trustor’s instructions. This allows the estate owner to set specific conditions for the allocation of their estate and to even see the results of sharing their assets themselves.

In many ways, a living trust is like a last will and testament, except they can be put into action before the trustor passes away. As the trust operates the same whether the trustor is alive, dead, or incapacitated it makes the distribution of assets to family and beneficiaries much easier and allows the estate to avoid court processes such as probate.

Types of Living Trusts

Living trusts can be split into two different categories: revocable and irrevocable. The type of trust that the trustor chooses can have a big effect on their access to assets that will be protected by the agreement.

A revocable trust allows the trustor to be the trustee of the arrangement, make changes to who may benefit from it, and to retain full control of the assets in the trust. However, this can also lead to the property in the trust being subject to estate taxes when the grantor dies.

Irrevocable trusts on the other hand work slightly differently. These cannot be amended by the trustor once the arrangement has been put into action. This relinquishes some control of their assets to the chosen trustee but ensures the estate will be exempt from estate tax.

Advantages and Disadvantages of Living Trusts

There are a number of advantages of using living trusts over other estate planning tools such as a Power of Attorney or will. The most important benefits include:

  • It can avoid the complications of the probate process
  • Trusts offer the best protection of your assets
  • They are fully private and don’t become a matter of public record

Living trusts are not perfect legal instruments, however. There are also some important disadvantages to using a trust that potential trustors should consider before setting one up, which include:

  • They are expensive to manage
  • You will personally retain less control of your assets
  • You may need to retitle any real estate you own

A living trust is a legal document used by individuals to manage their estate while they are still alive. The person creating this kind of trust is known as the trustor or grantor. They use these kinds of arrangements to store and distribute their wealth and assets to chosen beneficiaries.

Living trusts offer a highly popular way to plan the transfer of an estate to descendants because they are not subject to costly probate procedures. Therefore, knowing how they work can be an essential step to your estate plans.

How Does a Living Trust Work

When a living trust is set up, the trustor places their designated assets into the control of a trustee. In most cases, the trustee will usually be a bank or a financial institution that will manage the assets. However, they can also be individuals too and can even be the grantor themselves.

The trustee will have a fiduciary responsibility to distribute the assets to beneficiaries according to the trustor’s instructions. This allows the estate owner to set specific conditions for the allocation of their estate and to even see the results of sharing their assets themselves.

In many ways, a living trust is like a last will and testament, except they can be put into action before the trustor passes away. As the trust operates the same whether the trustor is alive, dead, or incapacitated it makes the distribution of assets to family and beneficiaries much easier and allows the estate to avoid court processes such as probate.

Types of Living Trusts

Living trusts can be split into two different categories: revocable and irrevocable. The type of trust that the trustor chooses can have a big effect on their access to assets that will be protected by the agreement.

A revocable trust allows the trustor to be the trustee of the arrangement, make changes to who may benefit from it, and to retain full control of the assets in the trust. However, this can also lead to the property in the trust being subject to estate taxes when the grantor dies.

Irrevocable trusts on the other hand work slightly differently. These cannot be amended by the trustor once the arrangement has been put into action. This relinquishes some control of their assets to the chosen trustee but ensures the estate will be exempt from estate tax.

Advantages and Disadvantages of Living Trusts

There are a number of advantages of using living trusts over other estate planning tools such as a Power of Attorney or will. The most important benefits include:

  • It can avoid the complications of the probate process
  • Trusts offer the best protection of your assets
  • They are fully private and don’t become a matter of public record

Living trusts are not perfect legal instruments, however. There are also some important disadvantages to using a trust that potential trustors should consider before setting one up, which include:

  • They are expensive to manage
  • You will personally retain less control of your assets
  • You may need to retitle any real estate you own