A living trust is different from a trust that is created by a will (called a “testamentary” trust). A living trust is an agreement made during the lifetime of the “settlor,” the person creating the trust.
In creating the trust, the settlor is making an agreement with a trustee who will be responsible for managing the trust. In many circumstances, the trustee and the settlor are the same person. In other trusts, the trustee is a trusted relative, friend, professional, or institution. The settlor then transfers property to the trust such as real estate, personal property, boats, cars, investment accounts, etc. That property then becomes the responsibility of the trustee, who has a legal duty to prudently manage it for the maximum benefit of the individuals or entities identified in the trust as beneficiaries.
Living trusts come in two basic types: irrevocable trusts and revocable trusts.
An irrevocable trust is just what it sounds like. You can’t take it back. An irrevocable trust offers certain protections from estate taxes and can shelter assets from expenses such as long-term care costs. They are complicated and require careful planning.
A revocable trust, on the other hand, is not permanent, although it becomes so upon the settlor’s incapacity or death. Revocable trusts provide a number of benefits such as lifetime management of assets, avoidance of probate expenses upon death, potential for estate tax savings, and planning for disabled or minor children.