Living Trusts are a special type of trust that go into legal effect immediately upon their signing, i.e., when the Trustmaker is still alive. They are also known as “inter vivos” trusts, which means “during life” in Latin. This distinguishes them from testamentary trusts, which, as discussed above, become legally effective only after the Trustmaker dies. Living Trusts therefore offer lifetime planning opportunities (such as instructions on how to manage one’s property if one becomes disabled) that simply cannot be had with a testamentary trust which take effect when it is too late.
Living Trusts are increasingly being used as the ideal solution for those who no longer want to expose themselves to the dangers of joint tenancy or force the estate to go through probate with a will. There are so many advantages to using trusts that recent studies report that up to half of all people who now plan their estates are using trusts instead of wills.
We are not surprised by this trend. The advantages of a properly designed and funded Living Trust include the ability to plan for a possible disability, legitimate tax avoidance, asset protection for the surviving spouse, individualized planning to protect your spouse and children, enhanced privacy, and probate avoidance. Also, because a properly drafted Living Trust can own any type of stock and participate in partnerships and limited liability companies, they can be used to help smoothly transfer the family business to the next generation. If you own a small business, a Living Trust can enhance your business succession planning.
Furthermore, with a Living Trust one can still take advantage of the probate process if desired. The difference is that with a Living Trust the family has the choice of deciding whether probate court proceedings have any benefit – it is not forced into probate as happens to those who fail to plan or plan with simple wills.
Living trusts also come in several different types. The most commonly used living trust today is the “Revocable Living Trust”.