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What Are Living Trusts And How Do They Work?

Living trusts

Living trusts give your estate direction, ensuring your loved ones handle it as you wish. While trusts seem confusing, they aren’t as complicated as they sound - just over 40% of Americans have a living trust.

In this article, we cover a beginner's guide to living trusts. With the right help, you too can open a trust and protect your assets.

What are living trusts?

If you want to manage your estate while you’re alive, yet prepare for when you’re gone, a living will and trust may be what you need. A trust is a legal document that holds your assets, such as your house, cars, bank accounts, and investments in trust while you’re alive. When you die, the trustee is responsible for distributing the assets to your named beneficiaries.

Living trusts protect your assets upon your passing, avoiding probate and removing the assets from your name for privacy concerns.

How do living trusts work?

When you open a living trust, you transfer your assets into the trust, but you remain in charge of the assets as you are the trustee. You no longer ‘own’ the assets once you put them in the trust - the trust owns them even though you can be the trustee (owner).

Any assets you put into the trust are in the trust’s name and not your own. Most people name themselves as trustee and name a successor trustee should they die or become incapable of managing the trust.

The successor trustee’s job is to act on your behalf and distribute the assets to your named beneficiaries. You also have the option to name specific conditions the beneficiaries must meet before receiving their inheritance, such as becoming a specific age or finishing college.

Types of living trusts

With all of that being said, there are a few different types of living trust.

Revocable living trust

The revocable living trust is the most common trust. As the name suggests, the grantor (you) can change or cancel the trust as you wish. It’s not as easy as it sounds to cancel or make changes (there’s a lot of administrative work involved), but it is possible.

Irrevocable living trust

If you put your assets in an irrevocable trust you cannot change it. The same applies to any irrevocable beneficiaries. This is less common for obvious reasons. If you’re young and aren’t sure about how you set your trust up is what you’ll want in your later years, a revocable trust makes more sense.

When you die, though, whether you set up a revocable or irrevocable trust, it becomes irrevocable so that no one can change the trust.

Considerations for setting up a living trust

Before you set up a living trust, consider the following:

Choosing the type of trust

Whether you choose a revocable or irrevocable trust, keep in mind that you cannot change an irrevocable trust.

Choosing your assets

Setting up a trust doesn’t help unless you fund it with your assets. Choose the assets you want in the trust, considering assets such as your house, investments, cars, and/or your business.

Choosing your beneficiaries

You can choose any beneficiaries you want, including friends, family, or even charities. Think about who you want your assets to go to, especially if you’re funding an irrevocable trust.

Transfer all assets into the trust

Funding the trust isn’t the same as transferring the assets into a trust. You must rename all assets in the trust’s name, which may require some paperwork and/or time depending on the asset.

Pros of Living Trusts

Here are some of the pros of living trusts.

Avoids probate

If you die without a trust, your estate goes into probate. The process can delay when your beneficiaries receive their inheritance. It can also be time-consuming for the executor, who must oversee everything.

Avoids anyone contesting your wishes

Challenging a will is common, but a trust lowers the risk. Challengers must prove you were not of sound mind and/or were coerced into setting up the trust and funding it, which is much harder to prove than contesting a simple will.

Trusts create privacy

Trusts aren’t public records, so no one will know how much you left to your beneficiaries or try to come after it because the assets aren’t in your name.

Cons of Living Trusts

As with every pro, there's also a con. Here are some associated cons:

Trusts are costly

You need an estate lawyer to set up your trust. Depending on how much you put into the trust, it could cost a few thousand dollars to set up.

Inconvenient to make changes

If you want to sell an asset or even refinance a house you put into the trust, you must pay a lawyer to take it out of trust so you can sell or change the asset and then pay the lawyer again to put it back into trust (if you keep the asset).

Administrative work is hefty

Putting your assets into a trust means renaming the assets. For many things like your house, bank accounts, and investments, it means a lot of paperwork and potentially some fees.

Who are living trusts best for?

Living trusts are best for anyone who wants control over their estate. It’s not just about managing who receives your inheritance upon your death, but rather managing your estate to avoid probate and put a 3rd party in charge of certain assets until all beneficiaries satisfy any conditions you set.

Suppose you’re concerned about your estate going through probate. In that case, your beneficiaries losing 10 - 15% of your estate to court costs or anyone challenging your estate, a living will and trust can cover all your bases.

Living will and trust: What’s the difference?

A living will and trust both have to do with your estate, but the similarities end there. Here’s what you must know about the differences between a living will and trust:

A living will goes into effect when you die

It doesn’t control your assets when you’re alive, even if you’re unable to make your own decisions. Living trusts manage your assets from the moment you open and fund the trust. You are the trustee while you’re alive (if you choose to be), and your successor trustee takes over when you cannot manage your estate.

A living will typically goes through probate

This process typically holds up the distribution of the estate and costing the estate money, but a trust skips probate.

A living will is a public record, whereas a trust is not

Anyone not listed in the trust would not have access to the documents.


Living trusts help organize and protect your estate. Understanding the process of funding the trust and managing is important. Having a living will and trust ensures you can determine what happens with your estate when you're alive and have peace of mind that your successor will handle it how you planned upon your passing.

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