In this article, we’re answering “What is a living trust?” This will include a comparison of living and irrevocable trusts along with answers to common questions we receive from our members.
Of course, if you are trying to decide which trust structure best meets your needs, you should speak with a qualified estate planning expert that understands your situation and the variables that could impact your plans.
This article is part of our free series on banking, estate planning, and wealth management, including a free detailed guide to opening a private bank account for yourself and your family members.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- What Is a Living Trust?
- Living Trust vs Irrevocable Trust
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
What Is a Living Trust?
A living trust, which is also known as a revocable trust, is a legal arrangement used in estate planning. The benefit of a living trust is that it allows the grantor to change the trust agreement, remove assets, change beneficiaries, and more during their lifetime.
After the grantor passes, a living trust immediately converts to an irrevocable trust, which enables probate avoidance. While this is beneficial from a privacy and efficiency perspective, the assets in the estate are still subject to estate tax.
In addition to avoiding probate, converting to an irrevocable trust “locks in” the wishes of the grantor, which requires the successor trustee to then conduct trust administration and distribution to the trust beneficiaries in accordance with the trust document
Living Trust vs Irrevocable Trust
The main difference between a living trust and an irrevocable trust is that a living trust can be amended by the grantor at any point during their lifetime while an irrevocable trust cannot be changed.
With this in mind, a living trust is more commonly used when the grantor wants to maintain control, the ability to make amendments, and even dissolve the trust prior to their death.
Of course, when it comes to deciding which trust is best for your unique situation you should speak with a qualified estate planning professional that can walk you through your options.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into what a living trust is. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
What Is the Primary Purpose of a Living Trust?
The primary purpose of a living trust is for the grantor to maintain control and the ability to make adjustments over the trust assets during their lifetime.
What Are the Pros and Cons of a Living Trust?
The pros of a living trust include the ability to make changes, remove assets, and even dissolve the trust during the lifetime of the grantor. The cons of a living trust include the ongoing cost, administration, and complexity compared to wills.
Are There Any Disadvantages to a Living Trust?
One key disadvantage of a living trust is that it does not offer asset protection, protection from creditors, or tax advantages when it comes to the trust assets.
What Assets Should Not Be in a Trust?
The assets that should not be in a trust include retirement accounts, health savings accounts, vehicles, certain insurance policies, personal items like clothing, and various financial accounts.
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