A revocable living trust or intver vivos trust is a written document created by one or more persons called settlors or grantors. (For simplicity, we will use just the term “trust” instead of revocable living trust throughout the rest of this post.) The trust instrument names a trustee or trustees who have the power to control whatever property is placed in the trust subject to the settlor’s instructions. The trust property is used for the benefit of one or more beneficiaries. In fact, the trustee has a fiduciary obligation to follow the settlor’s instructions, to prudently manage the property of the trust, and to act in the best interests of the beneficiaries. With a living trust, the settlor is usually the trustee and is also a beneficiary during his or her lifetime. Thus, the settlor retains complete control over his or her property while living and competent.
One of the advantages of a revocable living trust is that a successor trustee takes over the trustee duties when the settlor dies or becomes incapacitated. This feature can help to avoid probate and reduce the likelihood of a guardianship.
In a nutshell, a living trust is an artificial legal entity created by a settor or grantor that provides instructions for the management of the settlor’s property during his or her life and the final management and distribution of the property after death. A trust has advantages if you become disabled because the successor trustee can manage the property for you and you can leave detailed enforceable instructions. A trust avoids a guardian of the property in the trust. A properly funded living trust avoids probate but not estate taxes. A properly set up living trust with certain provisions may avoid estate taxes. Living trusts also do nothing to avoid claims of creditors for the person who creates the trust. That person’s heirs may, however, enjoy some creditor protection if the property remains in trust and the trust has spendthrift features.
You may need a living trust if you are concerned about becoming disabled, if you wish to avoid probate, or if your estate is taxable.