A living trust is a legal document or trust created while a person, known as the grantor, is alive. These are created for the uncomplicated transfer of the assets without the complex and costly probate process.
A designated person, the trustee, is empowered to manage that person’s assets and hold legal possession and manage these assets for the benefit of eventual beneficiaries. When the grantor dies, trust assets are allocated to its beneficiaries under the terms that the grantor placed in the trust.
A living trust differs from a will because the trust is in effect when the grantor is alive. The trustee does not have to receive court approval for the distribution of assets to beneficiaries when the grantor dies or becomes incapacitated.
Trusts may be revocable or irrevocable. A living revocable trust allows a grantor to designate themself as the trustee and control its assets. The grantor may change trust rules and beneficiaries or terminate the trust.
The trust will stay as part of the grantor’s estate. That person may have tax liability if the estate exceeds the estate tax exemption when the grantor dies.
Under an irrevocable living trust, the grantor gives up some rights of control of the trust. The trustee becomes the trust’s legal owner. The grantor, however, lowers their taxable estate. Once the trust agreement is made, the grantor has little power to make amendments and the named beneficiaries are set.
Living trusts may be designated as beneficiaries of certain assets that would go directly to the named beneficiary. The trust’s terms of distribution override any directions in a will.
These assets include employer retirement accounts such as 401(k)s and individual retirement accounts, life insurance, and payable on death and other bank accounts.
Estate planning provides many options on distributing property. An attorney can help prepare a valid plan that meets a person and their family’s needs.