What Is Living Trust?
A living trust is a legal entity created during the grantor's lifetime that holds assets for the benefit of designated beneficiaries, allowing assets to pass outside of probate while providing flexibility and control.
Key Characteristics
- Created during your lifetime
- Avoids probate for assets in the trust
- Provides privacy (not public record)
- Allows for incapacity planning
- Can be revocable or irrevocable
Key Takeaways: Living Trust
- 1.Created during your lifetime
- 2.Avoids probate for assets in the trust
- 3.Provides privacy (not public record)
- 4.Allows for incapacity planning
- 5.Consult a fiduciary financial advisor to understand how living trust applies to your specific financial plan.
Detailed Explanation
A living trust (also called an inter vivos trust) is established while you're alive, as opposed to a testamentary trust created by a will. Assets transferred to the trust are managed by a trustee according to the trust's terms during your life and distributed to beneficiaries after death.
The most common type is a revocable living trust, which you can modify or revoke at any time. You typically serve as your own trustee while alive and capable. A successor trustee takes over if you become incapacitated or upon your death.
Living trusts avoid probate, the often lengthy and public court process for validating wills. They also provide privacy, as trust documents aren't public records like wills that go through probate.
Living Trust: Quick Reference
| Aspect | Detail |
|---|---|
| Definition | A living trust is a legal entity created during the grantor's lifetime that holds assets for the benefit of designated beneficiaries, allowing assets to pass outside of probate while providing flexibility and control. |
| Category | Estate |
| Key Feature 1 | Created during your lifetime |
| Key Feature 2 | Avoids probate for assets in the trust |
| Key Feature 3 | Provides privacy (not public record) |
| Related Service | Professional Guidance Available |
Source: SWE90 Fiduciary Advisory Team, SEC, IRS, CFP Board
Example Scenario
A homeowner transfers their house to a revocable living trust. They remain as trustee and use the property normally. Upon their death, the successor trustee distributes the house to beneficiaries without probate court involvement.
Why It Matters
Living trusts provide a seamless transfer of assets at death, avoiding probate costs and delays. They also provide for management of your affairs if you become incapacitated, without requiring court intervention.
"Understanding living trust is one of the building blocks of financial literacy. I advise all my clients to learn this concept thoroughly; it directly impacts how you build, protect, and transfer wealth."
Brett R. Henderson, CIMA, CPFA, CRPS
Fiduciary Financial Advisor, SWE90
786+
Pages of financial education
Source: SWE90
150+
Financial terms defined
Source: SWE90 Knowledgebase
3%+
Potential "Advisor Alpha" value attributed to behavioral coaching, tax-efficient withdrawals, asset location, and rebalancing in a third-party industry study (hypothetical industry-wide estimate; not a SWE90 performance result, expected return, or guarantee)
Source: Vanguard, Putting a value on your value: Quantifying Vanguard Advisor's Alpha (Kinniry et al.), latest update
The Bottom Line
Understanding living trust is essential for making informed financial decisions. A living trust is a legal entity created during the grantor's lifetime that holds assets for the benefit of designated beneficiaries, allowing assets to pass outside of probate while providing flexibility and control. A fiduciary financial advisor can help you evaluate how this concept applies to your specific situation and integrate it into a comprehensive financial plan.
Brett R. Henderson, CIMA, CPFA, CRPS, Fiduciary Financial Advisor, SWE90
Frequently Asked Questions
Do I still need a will if I have a living trust?
Yes. A 'pour-over will' catches any assets not transferred to the trust and names guardians for minor children.
Does a living trust avoid estate taxes?
A revocable living trust by itself doesn't reduce estate taxes, assets are still part of your taxable estate. Irrevocable trusts can provide tax benefits.
Is a living trust expensive to set up?
Costs vary widely ($1,500-$5,000+ for a properly drafted trust), but may be worth it for the probate avoidance benefits, especially for larger estates or real estate in multiple states.
Need Help Understanding Living Trust?
Our fiduciary advisors can help you understand how this concept applies to your specific financial situation.