What Is a Living Trust? A Guide to Revocable Living Trusts
A living trust is a popular tool in many estate planning conversations — but whether it’s the right fit for you depends on your individual needs and objectives.
What Is a Living Trust?
A living trust is a legal arrangement created while you’re alive and funded with the assets you choose to transfer into it. The trustee — typically you, while you’re living — has full authority to manage these assets.
Like a will, a living trust designates one or more beneficiaries, to whom the trust assets are structured to pass automatically upon your death.
Using a trust involves a complex set of tax rules and regulations. Before moving forward, it’s worth working with a professional familiar with living trust estate planning rules, whether you’re based in Fort Myers, elsewhere in Southwest Florida, or beyond.
What Is a Revocable Living Trust?
If you create a revocable living trust, you retain the flexibility to:
- Change the terms of the trust at any time
- Change the trustee
- Change the beneficiaries
- Terminate the trust altogether
This flexibility is what distinguishes a revocable living trust from other estate planning tools.
Living Trust Benefits
A living trust offers several potential advantages:
- Avoid probate — Trust assets are designed to transfer outside the probate process, allowing for a more seamless and private transfer of assets.
- Manage your affairs — A properly funded living trust, paired with a trustworthy trustee (or alternate trustee), can serve as a mechanism for managing your property if you become physically or mentally unable to do so yourself.
- Ease and simplicity — A qualified attorney can create a living trust tailored to your specific goals. If your circumstances change, updating the trust’s provisions is generally straightforward.
- Avoid will contests — Assets passing through a living trust may be less vulnerable to the kind of legal challenges sometimes seen with will transfers.
Living Trust Drawbacks
A living trust isn’t a complete estate planning solution. It won’t accomplish certain objectives, including:
- No creditor protection — A living trust does not protect assets from creditors. Trust assets are also considered a “countable resource” when determining Medicaid eligibility.
- Setup costs — There is a cost associated with establishing a revocable living trust.
- Asset transfer limitations — Not all assets transfer easily into a living trust. For example, transferring ownership of a vehicle into a trust can sometimes create difficulty obtaining insurance, since you’re no longer the listed owner.
- No tax savings — A living trust is not a mechanism for reducing taxes, either during your lifetime or at your death.
Living Trust vs. Will: Key Difference
Both a living trust and a will can designate beneficiaries to receive your assets. The key difference is process: assets in a living trust are structured to pass outside of probate, while assets passing through a will typically go through the probate process.
Frequently Asked Questions
What is a living trust?
A living trust is a legal arrangement created during your lifetime and funded with assets you choose to transfer into it. The trustee manages these assets, and named beneficiaries receive them upon your death, similar to a will.
What is a revocable living trust?
A revocable living trust is a living trust that allows you to change its terms, trustee, or beneficiaries at any time, or terminate it entirely, as long as you’re alive and have the capacity to do so.
Does a living trust avoid probate?
Yes. One of the main living trust benefits is that assets held in the trust are designed to transfer outside the probate process, offering a more private and seamless transfer to beneficiaries.
Does a living trust protect assets from creditors?
No. A living trust does not protect your assets from creditors, and trust assets are still considered a countable resource when determining Medicaid eligibility.
Does a living trust save on taxes?
No. A living trust is not designed to reduce taxes, either during your lifetime or after your death.
Who manages the assets in a living trust?
The trustee manages the assets in a living trust. In most cases, you serve as your own trustee while you’re alive and able to do so, with a successor trustee named to take over if needed.
The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The content is developed from sources believed to be providing accurate information. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
