A living trust is a document that designates a trustee to oversee an individual’s money or other assets while that person is still alive. Creating a living trust is done by the individual, also known as the grantor, by signing a Declaration of Trust. This legal document allows the trustee to handle the ebb and flow of assets that the grantor names in the trust. Some of those assets could include bank accounts, valuable jewelry, stocks and bonds, and the grantor’s home.
A living trust allows the grantor’s assets to be transferred to their beneficiary upon their death, avoiding the time-consuming process of probate. Thus, the trustee is essentially acting as the executor of the grantor’s will.
Types of living trusts
There are two types of living trusts that are available to the grantor:
- A revocable living trust is the most common type of living trust. This allows the grantor the flexibility during their lifetime to add or remove assets to or from the trust. Beneficiaries may also be added or removed. Upon the death of the grantor, the trust becomes irrevocable, and no changes may be made.
- An irrevocable living trust does not allow for any changes to be made during the grantor’s lifetime or following their death. In the event that the grantor wants to make changes to the trust, they will need permission from the trustee or an order from a judge.
Irrevocable living trusts remove assets from your estate. This means that the beneficiary may be able to avoid paying some of the taxes that are normally associated with the distribution of assets, unlike revocable living trusts.
If you are considering setting up a living trust, experienced legal guidance can assist you with the process and help you determine what methods will best suit your plans.