What is a trust between living people?
When someone sets up an inter-vivos trust, they do so while alive. This is called a trusteeship relationship. This type of trust, also called a “living trust,” has a term set at the time it is created and can give assets to the recipient during or after the trustor’s lifetime. It works after the trustor dies, not while they are still alive. This is called a testamentary trust.
How a Trust Between Living People Works
A trust is usually set up to hold assets for the benefit of a group known as trust recipients. Usually, those assets are given to a manager in charge of managing them and ensuring that the trust agreement is followed. Part of this job is ensuring that the assets are given to the named beneficiaries.
However, an inter-vivos trust is a living trust because the owner, or trustor, can use the assets and benefit from the trust while they are still alive. The assets would be given to the beneficiaries by the caretaker after the trustor dies. The trustor, or trustors if they are married, can be the trustee while they are still alive and manage the assets until they can’t. At that point, a chosen backup trustee takes over. The type of trust that a living trust can have is either revocable or irreversible.
Trust That Can Be Cancelled
There are different types of trusts, but some can be changed by either the trustor or the donor. Anyone who sets up the trust can also end it, and any money that comes in will be given to the person who set it up. The trustor’s income and assets are given to the trust recipients when the trustor dies. Revocable trusts are helpful because they are changeable while the trustor is still alive and let the assets from the trustor’s estate be given to the people they were meant to.
Can’t Be Changed Trust
A trust that can’t be changed by either the trustor or the donor is called an irrevocable trust. Once the trust is set up as irreversible, it can’t be changed or canceled. When someone puts assets in a permanent trust, they no longer legally own them. When the trustor dies, the trustee takes care of the assets and gives them to the beneficiaries.
What an inter-vivos trust can do for you
When you set up an inter-vivos trust, you can avoid probate, the court process of dividing the deceased’s assets. This is a valuable tool for estate planning. It can take a long time, cost a lot of money, and make a family’s private financial affairs public. This is called probate. A correctly set-up trust helps ensure that the assets are given to the right people at the right time and in private. So, the assets are given to the living family members in a way that doesn’t affect how they use them.
The person who sets up the live revocable trust can also be the trustee. This means that the owner controls the assets. However, because the assets are in the trustor’s name, estate taxes may be due if the assets are worth more than the trustor’s estate tax allowance when the trustor dies.
By making a living irrevocable trust, the trustor lowers the estate’s value because they give up all rights to the assets. This means that the estate would pay less in taxes.
A living trust is usually set up as a revocable trust, but when the trustor dies, the trust turns into an irreversible trust.
Setting up an Inter-Vivos Trust
When someone sets up a trust, they name the trust parties: the grantors (usually the partners), the beneficiaries, and the trustee. Wives are sometimes named as trustees. However, one person should be named as a trustee in case both partners die.
It’s possible for a trust to own almost anything. Things like real estate, stocks, and business shares can be re-titled in the trust’s name. Some things, like life insurance and retirement plans, already have a beneficiary named, so they don’t need to be included.
Along with giving assets to specific beneficiaries, a trust can also include instructions for the trustee on handling and distributing the assets while they are still in the trust.
To carry out the promise, you need a will. In a sense, the trust becomes the primary recipient of a will. A will also serves as a “catch-all” that decides what to do with assets that might not have been included in the trust. It is also the will that names who will take care of younger children.
Conclusion
- A live trust that holds a trustor’s assets is called an inter-vivos trust.
- An inter-vivos trust is helpful because it helps escape probate, which is the legal process of giving away an owner’s property after they die.
- A person who sets up a trust can also be the manager while they are still alive or until a backup named in the trust is given permission to take over.
