A living trust is a legal instrument that names a trustee to manage a person’s funds or other assets while they are still living. The person, also known as the grantor, establishes a living trust by signing a Declaration of Trust. The grantor’s assets, which they name in the trust might fluctuate in value. This legal agreement gives the trustee control over addressing that reality. Such assets include the grantor’s residence, precious jewelry, bank accounts, stocks and bonds.
Using a living trust avoids the lengthy probate process, as the grantor’s assets can be given directly to their beneficiary upon their passing. This is because the trustee is carrying out the grantor’s intent, which means that the court doesn’t need to oversee the process of estate administration.
Types of living trusts
Two types of living trusts are available to a grantor:
- An irrevocable living trust may not be modified while the grantor is alive or after their death. If the grantor wishes to change the trust, they must obtain authorization from the trustee or a court order. The main goals of establishing an irrevocable trust are asset protection, minimizing estate taxes and gaining access to government benefits. Irrevocable trusts are useful for those in professions such as medicine or law, which may expose them to legal action.
- The most prevalent kind of living trust is a revocable living trust. This gives the grantor the freedom to add or withdraw assets from the trust at any moment throughout their lifetime. Additionally, beneficiaries can be changed or added. The trust is irreversible upon the grantor’s death, and modifications cannot be made past that point.
If you’re thinking about creating a living trust, you should strongly consider seeking guidance to assist you with the process, given all that is at stake.