A:

Within estate planning, individuals have a myriad of options for maintaining control over assets beyond the grave. A tool often used in estate plans to control the flow of assets is an inter vivos trust, more commonly referred to as a living trust.

An inter vivos trust is a legal document created while the individual for which the trust is drawn up is still living. The assets are titled in the name of the living trust by the trust owner and are used or spent down by the trust owner while he is alive. Once the trust owner passes away, the designated beneficiaries of the trust are granted access to the assets, which are then managed by a successor trustee. A living trust is created as either a revocable or irrevocable, and each type of inter-vivos trust has a specific purpose.

Revocable Living Trust

A revocable living trust is a trust document created by an individual that can be changed over time. Designated beneficiaries, assets, distribution of those assets and assigned trustees can be changed at the request of the trust owner at any time after the trust is established or while it is in force. Similarly, if the trust owner decides the trust is no longer appropriate, he can revoke it altogether. A change to a revocable living trust is completed through a trust amendment document initiated by the trust owner.

Revocable Living Trust Uses

Revocable living trusts are most often used to avoid probate and to protect the privacy of both the trust owner and beneficiaries of the trust. Revocable trusts may also be used to plan for mental disability of the trust owner. While revocable inter vivos trusts provide a great deal of flexibility to the trust owner, this type of trust is not appropriate for all estate-planning needs. If a trust is titled revocable, all assets used to fund the trust are considered the trust owner's personal assets. This means that revocable living trust assets are not protected from creditors in the event the trust owner is sued, nor are they sheltered from state or federal estate taxes when the trust owner passes away.

Irrevocable Living Trust

An irrevocable living trust is a trust document that cannot be changed after it has been signed. Designated trustees, beneficiaries or provisions within the trust remain the same from the time the trust is established until it is no longer applicable or no longer funded. A revocable living trust converts to an irrevocable trust once the trust owner passes away or once a specific provision of the revocable living trust is met. Specific provisions could include the death of a spouse, a certain date in the future or a life change for a designated beneficiary.

Irrevocable Living Trust Uses

Irrevocable trusts provide state and federal estate tax protection to the designated beneficiaries who inherit the assets held in the trust. Additionally, assets titled under a irrevocable living trust are sheltered from creditors in the event of a lawsuit. In more complex cases, irrevocable living trusts can be used in charitable giving, either through a charitable remainder trust or a charitable lead trust. An irrevocable living trust is only appropriate for individuals willing to give up control over their assets while alive or those who need enhanced asset protection.

RELATED FAQS
  1. What happens when a will and a revocable trust conflict?

    Learn why a revocable trust supersedes a will, but only for the assets held in the trust, when there is a conflict between ... Read Answer >>
  2. Inter Vivos Trust vs Testamentary Trust: What is the difference?

    Understand the difference between inter vivos trusts and testamentary trusts and discover how estate planning can offer tools ... Read Answer >>
Related Articles
  1. Retirement

    When a Revocable Trust Makes Sense

    A revocable trust can play an important role in an estate plan.
  2. Investing

    A Look Into Creating a Trust Fund With ETFs (VCIT, SDIV)

    Learn the basics of how a trust works and the two most common types. Discover how to use ETFs to fund a trust and the different strategies.
  3. Retirement

    Living Trusts vs. Simple Wills: A Comparison

    A look at wills versus living trusts and when to choose one over the other.
  4. Managing Wealth

    How to Set Up a Trust Fund in Canada

    You don't have to be rich to make use of a trust fund. Rules can be complex. Here's what you'll need to discuss with your lawyer.
  5. Retirement

    Estate Planning for Beginners: Part Three

    A primary purpose of most trusts is to provide a timetable for the distributions of assets where an outright distribution may not be warranted.
  6. Financial Advisor

    Passing an IRA to a Trust: The Good and Bad

    Creating a trust is a common estate planning tactic, but naming a beneficiary to an IRA to a trust may have unintended consequences.
  7. Retirement

    When Does the Benefit of a Trust Outweigh the Cost?

    Setting up a trust can be costly, but having a living trust in these situations can be beneficial.
  8. Retirement

    You’ve Created Your Living Trust, Now Fund It!

    You set up a trust with your estate planning attorney, but is it actually funded?
RELATED TERMS
  1. Revocable Trust

    A revocable trust is a trust whereby provisions can be altered ...
  2. Trust Fund

    A trust fund is comprised of a variety of assets established ...
  3. Beneficiary Of Trust

    A beneficiary of trust is the individual or group of people who ...
  4. Irrevocable Income-Only Trust - IIOT

    A type of living trust often used for Medicaid planning. It protects ...
  5. Irrevocable Trust

    An irrevocable trust cannot be modified, amended or terminated ...
  6. Alimony Substitution Trust

    A trust agreement in which a divorced person agrees to pay spousal ...
Hot Definitions
  1. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  2. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
Trading Center