If you’ve just started looking into estate planning and have been doing some research, you may have run across an unfamiliar term: the inter vivos or living trust.
What does the term “living trust” mean?
Living trusts are also referred to as “inter vivos” trusts. The term is used to describe a trust made during your lifetime, unlike a testamentary trust, which only becomes active when you die. A living trust can be either revocable or irrevocable.
The revocable living trust
A revocable inter vivos trust is a powerful legal agreement that has a variety of benefits. This trust involves a grantor (or a trustor) who transfers assets into the trust for the benefit of the trust beneficiary. The trustor usually names himself trustee and maintains control over the assets while he is alive. The trustor usually also names himself the beneficiary of the trust so he can use those assets for his own benefit until he dies. When the trustor dies, the assets go to the beneficiaries named by the trustor in the living trust. A successor trustee is designated by the trustor to manage the trust after death.
Benefits of revocable living trusts
There are some significant advantages to revocable trusts. They don’t require giving up control over assets since you can be both the trustee and the beneficiary during your lifetime. They can also be changed or revoked at any time if circumstances change.
With a revocable trust when you die the terms of the trust determine which beneficiaries receive which parts of the estate without the court’s having to be involved, unlike a Last Will and Testament.
But revocable trusts can also provide for minor children, beneficiaries with special needs, and other beneficiaries who might need asset protection or special instructions for how and when they receive their assets or their inheritances. The trust offers a great deal more flexibility than a standard Last Will and Testament and can help you address a variety of estate planning challenges.
The irrevocable living trust
An irrevocable trust, on the other hand, can provide tax advantages and more asset protection. As the name suggests, though, an irrevocable trust is one where the trustor gives up the power to make changes or revoke the trust. This inflexibility has a benefit – first, it can provide a means of limiting estate tax liability. Since those assets are no longer owned or controlled by you, they are not counted in your estate for tax purposes.
Other benefits of an irrevocable living trust
Other benefits of an irrevocable living trust though include protecting assets from being counted by Medicaid when you’re trying to qualify for assistance with nursing home bills. This requires planning ahead of time because of the five-year lookback period.
Specialty living trusts
Other irrevocable living trusts accomplish a variety of specific goals. There are charitable trusts that provide funds to a charity either during your lifetime or at your death. These trusts allow you to support charities over the course of years and receive a current tax break.
A spendthrift trust can protect wasteful heirs from frivolously spending their inheritances. These trusts can provide distributions over time, or simply protect the inheritance from the heir’s creditors. You can also create trusts for the care of pets or to manage other planning needs that are difficult to address through traditional wills and powers of attorney.
If you have questions regarding living trusts or other estate planning matters, please reach out to an experienced estate planning attorney. You can contact us at the Potter Law Firm for a consultation either online or by calling us at (704) 944-3245 in Charlotte, NC, or for individuals in Kentucky at (606) 324-5516 (Ashland, KY) or at (859) 372-6655 (Florence, KY).