A living trust, also known as a revocable trust, is a legal document created by an individual, known as the grantor, during their lifetime. This document allows the grantor to place their assets into the trust and manage them during their lifetime. Upon their death, the assets are transferred directly to the beneficiaries without going through probate.
Key Concepts in Living Trust
1. Grantor
The grantor, also known as the trustor or settlor, is the individual who creates the trust. They place their assets into the trust and can modify or revoke the trust at any time during their lifetime.
2. Trustee
The trustee is the individual or institution appointed by the grantor to manage the trust. In many cases, the grantor serves as the trustee during their lifetime, managing their own assets within the trust.
3. Beneficiary
The beneficiary is the individual or entity that will receive the assets from the trust upon the grantor’s death. The grantor can name multiple beneficiaries and specify how the assets should be distributed among them.
4. Revocable vs Irrevocable Living Trust
A living trust can be either revocable or irrevocable. A revocable trust allows the grantor to make changes or even dissolve the trust during their lifetime. An irrevocable living trust, on the other hand, cannot be altered or revoked once it has been established, providing a higher level of asset protection.
Pros and Cons
Like any estate planning tool, a living trust has its pros and cons. On the positive side, a trust can help avoid probate, provide privacy, and allow for management of assets if the grantor becomes incapacitated. On the downside, setting up a trust can be more complex and costly than drafting a simple will, and it requires the grantor to actively manage the trust.
Living Trust vs Will
A living trust and a will are both essential estate planning tools, but they serve different purposes. A will is a document that directs who will receive your property at your death and it appoints a legal representative to carry out your wishes. A trust, on the other hand, can avoid probate at death, can control all of your assets and can prevent the court from controlling your assets at incapacity.
A living trust is a powerful tool for estate planning. It provides a way to manage assets during the grantor’s lifetime and smoothly transfer them to beneficiaries upon the grantor’s death. While setting up a trust requires some effort and cost, the benefits can often outweigh the challenges when used correctly.