Living trust is an arrangement created during a person’s life, in which the trustee holds legal title to assets for a beneficiary. An individual may be the trustee of their own living trust. A living trust provides a way to avoid probate.
A living trust transfers assets from the grantor, who is the person funding or contributing assets, to the trust. With living trusts, grantors frequently name themselves as the trustee, who serves as the manager of the trust. In this regard, there is no practical difference between managing the trust and owning the assets directly. A primary advantage of a living trust is providing organization and contingency plans for the financial affairs of the grantor. This is accomplished by naming an alternative trustee in the event the grantor should die or is no longer able to manage the trust in his capacity as trustee. Similar to a will, a living trust dictates the grantor’s wishes and thus avoids the need for any court intervention. The assets in the trust pass directly to the named beneficiaries upon the death of the grantor. Different from a will, a living trust does not wait until the grantor is deceased in order to become effective. Living trusts are typically revocable, meaning that the grantor may modify or dissolve the trust at any time. In contrast to an irrevocable trust this feature does not aid in minimizing income and/or estate taxes as the trust’s assets are still considered property of the grantor, and taxed as such.