Living Trust: Definition, How Living Trusts Work

A revocable living trust, also called a living trust, revocable trust or inter vivos trust, is a legal document in which you let a trustee manage designated assets for you and your beneficiaries during your lifetime. The trust is changeable and can provide more control than a will.

• A living trust or revocable living trust can help your estate and heirs avoid the hassle and costs of probate.

• A living trust cannot designate guardianship for minor children, so wills and living trusts are often used together as part of an estate plan.

• Living trusts are trusts established during one’s lifetime, as opposed to testamentary trusts, which are created upon one’s death.

• Technically, living trusts can be revocable or irrevocable. However, people often refer to revocable living trusts or revocable trusts simply as “living trusts.”

» What kind of trust works for you?

How to create a revocable living trust

1. Create a trust document

The trust document lists assets the grantor wishes to include in the trust. It also names a trustee, as well as the heirs or beneficiaries who will receive assets after the grantor dies.

2. Sign and notarize the trust agreement

The grantor must sign the trust document and have it notarized to make it official.

3. Transfer assets into the trust

The grantor should transfer assets — such as bank accounts, investment accounts and real estate — to the trust by retitling the assets in the name of the trust. You can also title limited liability companies and tangible personal property, such as jewelry, into a trust.

Pros and cons of revocable living trusts

» Writing a will?

Revocable living trust vs. will

The main difference between a living trust and a will is when the legal agreement becomes active and what assets they concern. Living trusts are active during your lifetime once they’re signed and funded, while wills only come into play after your death.

Trusts tend to deal with specific assets rather than the sum of your personal holdings. You’ll probably still need a will if you set up a trust. A pour-over will is a common counterpart to a living trust, as it ensures that any assets not already in your trust will automatically transfer over to your living trust after you die.