What Is a Living Trust?

What Is a Living Trust?

Let me explain what a living trust is. It's a legal setup you create while you're alive to hold and protect your assets, and it directs how those assets get distributed after you die. As the grantor, you establish this to help your family and beneficiaries skip the long, public, and often expensive probate process. You designate a trustee—could be you or someone else—to control these assets for the beneficiaries' benefit at the right time.

Key Takeaways

Here's what you need to know right away. A living trust is an estate planning tool you set up during your life. It names a trustee and gives clear instructions for distributing your assets after you pass. These trusts can be revocable or irrevocable, which affects taxes and how flexible they are. You might choose a living trust over a will because it avoids probate altogether.

How Living Trusts Work

Living trusts let a trustee manage your assets and pass them to beneficiaries after you die. If it's revocable, you can often be the trustee yourself, handling everything while you're alive, and you name a successor to take over later. You start by creating a trust document that outlines all the rules—it's crucial, so I recommend working with an estate planning expert to get it right.

You decide which assets go in, transfer their titles to the trust, and then they're managed by you or your chosen trustee, who has a duty to act in the beneficiaries' best interests. You pick the beneficiaries when you set it up. When you die, the assets go to them as per your instructions in the trust. The trust can even be named as beneficiary for some assets, overriding a will.

Unlike a will, this trust kicks in while you're alive and doesn't need probate if you die or become incapacitated. That means smoother transfers without court involvement.

Assets in a Living Trust

To make assets part of the trust, you have to retitle them under the trust's name. This covers things like real estate—land, homes, commercial properties—or financial accounts. Personal items such as jewelry, artwork, antiques, or business interests can go in too.

Specific examples include stock and bond certificates, safe deposit boxes, mutual fund and brokerage accounts, money market accounts, CDs, checking and savings accounts, cash, money owed to you, life insurance policies, and non-qualified annuities.

But don't put your 401(k) or IRA in there. The IRS treats that as an early withdrawal, so you'd owe taxes on the whole amount that year, plus a 10% penalty if you're under 59½.

Types of Living Trusts

There are two main types: revocable and irrevocable. Let's break them down.

Revocable Trusts

This is the most common one. You can be the trustee and keep control over the assets. You have the power to change rules, switch beneficiaries, remove assets, or even end the trust anytime. It's useful if you get ill and can't manage things—a successor trustee steps in. Once you die, it becomes irrevocable. You still pay taxes on the assets during your life, but rates don't go up just because they're in the trust.

Irrevocable Trusts

Here, the trust owns the assets, and you can't be the trustee or keep control. You give up rights over them, and the trustee becomes the legal owner. Beneficiaries are set at creation, and changes are hard—sometimes you need court approval. You can't take assets back. But it protects from lawsuits and creditors, which is great for professionals like doctors. It also shrinks your taxable estate and doesn't count for programs like Medicare or Medicaid.

Important Note

You might want both a living trust and a will. The trust activates immediately and protects assets while you're alive, but a will handles things after death that the trust doesn't cover.

Advantages and Disadvantages of Living Trusts

Living trusts have pros and cons, like any legal tool.

Advantages

They give you peace of mind—your loved ones avoid probate, so assets distribute quickly without court costs. If you become incapacitated, your successor trustee manages things, not the court. For revocable ones, you pay normal taxes. Trusts keep your estate private. Irrevocable ones shield from creditors and legal issues.

Disadvantages

With irrevocable trusts, you lose ownership and control. Transferring titles, like for real estate, means filing fees. Setting it up often needs a lawyer, which costs money. No tax breaks unless it's irrevocable and reduces your estate size—otherwise, you owe on income and property.

Living Trust vs. Will

There are key differences between these two.

Living Trust

It lets you name beneficiaries and a trustee to handle distribution after death, avoiding probate for trust assets. It can be more complex and expensive than a will. It doesn't appoint executors or guardians for kids, so you probably need a will too. If revocable, it starts right away, and you control assets while competent, with instructions extending after death.

Will

This names an executor to follow your wishes after death, distributes assets, appoints guardians, and covers debts, taxes, and funerals. It goes through probate, which is time-consuming, expensive, and public. It's simpler and cheaper to create—just needs witnesses, maybe a notary. It activates on death or incapacitation.

How to Create a Living Trust

Get an estate lawyer's help, but you can prep some steps yourself. First, choose revocable or irrevocable. Then, pick beneficiaries and how assets get divided. Name a trustee who's agreed to the role. Fill out the document, review with your lawyer, sign with a notary. Fund it by transferring assets. Store the original safely, like in a bank safe deposit box, and tell your trustee where it is. Your lawyer should keep a copy too.

Is a Living Will the Same As a Living Trust?

No, they're different. A living will gives power of attorney to someone if you're incapacitated. A living trust holds assets for distribution without probate after death.

How Much Does a Living Trust Cost?

It usually needs an attorney, costing $1,500 to $3,000 in 2025, depending on complexity.

What Are Some Disadvantages of Living Trusts?

For revocable, no protection from taxes or creditors while alive. For irrevocable, you give up all control and flexibility.

The Bottom Line

A living trust is a key arrangement if you have assets to control and protect now and after death. You benefit from them while alive and direct distributions later. It skips probate for smooth transfers to beneficiaries.