Living Trust

Overview

A Living Trust, often referred to as an Inter Vivos Trust, is established and becomes operable during the settlor’s lifetime. Unlike a testamentary trust created through a will, a living trust enables the settlor to transfer assets to the trust, manage that trust while they’re alive, and ensure that those assets avoid the probate process upon their death.

The key feature of this trust is its ability to streamline estate management, minimize estate taxes, and provide confidentiality surpassing what a will can offer.

Examples

Example 1: John places his home and investments into a living trust, designating his daughter as the trustee. Upon John’s death, his daughter will manage and distribute the assets according to John’s wishes without the probate court’s involvement.
Example 2: Mary creates a living trust that allows her to dictate her care and financial allocations should she become incapacitated, ensuring her care needs are met without delays.

Frequently Asked Questions (FAQs)

Q1: What is the primary purpose of a living trust?
A1: The primary purpose of a living trust is to facilitate the management and distribution of the settlor’s assets during their lifetime and after their death, often bypassing the probate process.

Q2: How does a living trust differ from a will?
A2: A living trust is operational during the settlor’s lifetime and can manage assets if the settlor becomes incapacitated, whereas a will only takes effect after the settlor’s death and often requires probate.

Q3: Can I change or revoke a living trust?
A3: Yes, most living trusts are revocable, meaning you can alter or revoke them as long as you are alive and competent.

Q4: Do assets in a living trust avoid estate taxes?
A4: While assets in a living trust avoid probate, they are still subject to estate taxes; however, proper planning can minimize tax liabilities.

Q5: Who controls the assets in a living trust?
A5: The trustee, who can be the settlor themselves during their lifetime, manages and controls the assets.

Testamentary Trust: A trust created through a last will and testament that only becomes effective upon the death of the settlor.
Settlor: The person who creates and funds the trust.
Trustee: The individual or institution responsible for managing the trust’s assets according to its terms.
Probate: A judicial process for validating a will and administrating the deceased’s estate.

Online Resources

Suggested Books for Further Studies

Plan Your Estate by Denis Clifford
Living Trusts for Everyone: Why a Will Is Not the Way to Avoid Probate, Protect Heirs, and Settle Estates by Ronald Farrington Sharp
The Complete Book of Wills, Estates & Trusts by Alexander A. Bove Jr. Esq.

Fundamentals of Living Trusts: Estate Planning Basics Quiz

### What is a living trust designed to do primarily? - [x] Manage and distribute assets during the settlor's lifetime and after their death. - [ ] Avoid all types of taxes. - [ ] Act as a substitute for business planning. - [ ] Only take effect after death. > **Explanation:** A living trust manages and distributes assets both during the settlor's lifetime and after their death, often avoiding probate. ### Can a living trust be changed or revoked? - [x] Yes, as long as the settlor is alive and competent. - [ ] No, once created it cannot be changed. - [ ] Only under specific court orders. - [ ] Only if beneficiaries agree. > **Explanation:** Most living trusts are designed to be alterable or revocable while the settlor is alive and competent. ### What is the legal term for the person who creates a living trust? - [ ] Trustee - [ ] Executor - [x] Settlor - [ ] Beneficiary > **Explanation:** The settlor is the individual who establishes and funds the trust. ### What process does a living trust help to avoid? - [x] Probate - [ ] Litigation - [ ] Tax audits - [ ] Debt collection > **Explanation:** One of the key advantages of a living trust is that it helps avoid the probate process. ### Who manages the assets in a living trust? - [ ] The court - [x] The trustee - [ ] Only the settlor's heirs - [ ] Financial advisors > **Explanation:** A trustee is appointed to manage the assets in the living trust, according to its terms. ### Are assets in a living trust subject to estate taxes? - [x] Yes, they are still subject to estate taxes. - [ ] No, they are entirely tax-exempt. - [ ] Only if they exceed $1 million. - [ ] Only if the court orders so. > **Explanation:** While assets in a living trust avoid probate, they are still subject to estate taxes. ### What type of trust only becomes effective upon the settlor's death? - [ ] Inter vivos trust - [x] Testamentary trust - [ ] Irrevocable trust - [ ] Charitable trust > **Explanation:** A testamentary trust is created through a will and only takes effect upon the death of the settlor. ### Which of the following is NOT a benefit of a living trust? - [ ] Avoiding probate - [ ] Managing assets in case of incapacity - [ ] Privacy of estate details - [x] Completely avoiding taxes > **Explanation:** A living trust does help in avoiding probate, managing assets, and maintaining privacy, but it does not completely avoid taxes. ### How can a settlor ensure their care is managed through a living trust? - [ ] By transferring all assets to a trustee overseas - [ ] By including a durable power of attorney - [ ] By creating bank account authorizations - [x] By writing specific care instructions within the trust > **Explanation:** Specific care instructions must be included in the trust to manage the settlor’s care according to their preferences. ### Which position can the settlor hold in a living trust during their lifetime? - [ ] Only as a beneficiary - [ ] Only as a co-trustee - [x] As both the trustee and beneficiary - [ ] Only as a grantor > **Explanation:** The settlor can act as both the trustee and the beneficiary of the living trust during their lifetime.

Thank you for exploring the concept of Living Trusts. Continue building your expertise in estate planning!