Living Trust

Definition

A living trust is a legal arrangement where a person (the grantor) places their assets into a trust during their lifetime, allowing for the management and distribution of those assets both while they are alive and after they pass away. This type of trust helps avoid probate, maintains privacy, and can provide for the grantor's financial management if they become incapacitated.

5 Must Know Facts For Your Next Test

1. Living trusts can be revocable or irrevocable, with revocable trusts allowing the grantor to maintain control over their assets.
2. One of the main benefits of a living trust is that it bypasses the probate process, enabling faster and more private distribution of assets to beneficiaries.
3. Living trusts can include various types of assets such as real estate, bank accounts, investments, and personal property.
4. The grantor can serve as the initial trustee of their living trust, ensuring they retain control over their assets while they are alive.
5. If the grantor becomes incapacitated, the successor trustee named in the living trust can step in to manage the assets without court intervention.

Review Questions

• How does a living trust differ from a will in terms of asset distribution and management?
  • A living trust differs from a will primarily in its ability to bypass probate, allowing for quicker distribution of assets directly to beneficiaries without court involvement. While a will only takes effect upon the death of the individual and must go through probate, a living trust can provide for asset management during the grantor's lifetime, including situations of incapacity. This means that with a living trust, beneficiaries may receive their inheritance faster and with less public scrutiny than with a will.
• Discuss how a living trust can help in managing an individual's financial affairs if they become incapacitated.
  • A living trust allows for seamless management of an individual's financial affairs if they become incapacitated by designating a successor trustee who takes over responsibility for managing the assets held in the trust. This arrangement avoids the need for court-appointed guardianship or conservatorship, which can be time-consuming and invasive. By having this structure in place, the grantor can ensure their wishes regarding asset management are followed even when they cannot make decisions themselves.
• Evaluate the long-term advantages of establishing a living trust compared to other estate planning tools.
  • Establishing a living trust offers several long-term advantages compared to other estate planning tools like wills. For starters, living trusts avoid probate, resulting in faster access to assets for beneficiaries and lower legal fees. They also maintain privacy since trusts do not become public records upon death. Additionally, living trusts provide flexibility, as they can be altered during the grantor's lifetime, and ensure effective management of assets during incapacity. These benefits make living trusts an attractive option for comprehensive estate planning.

Related terms

Revocable Trust: A type of living trust that can be altered or revoked by the grantor at any time before their death.

Probate: The legal process through which a deceased person's will is validated and their estate is administered.

Trustee: An individual or entity appointed to manage the assets held in a trust according to the terms set by the grantor.