What is a Living Trust and How Does It Work?

Planning for the future is one of the most important steps you can take for yourself and your loved ones. Many people think about writing a will, but another powerful tool you may not know much about is a living trust.

A living trust can help you control how your property and assets are handled both during your lifetime and after your death. In this guide, we’ll break down what a living trust is, how it works, the types of living trusts, and how it compares to a will.

What Is a Living Trust?

A living trust is a legal document that allows you to place your assets—like your home, bank accounts, and investments—into a trust while you are still alive. You, the person creating the trust, are called the grantor. You choose a trustee to manage the trust. In many cases, you can even act as your own trustee during your lifetime.

When you pass away, the trustee you’ve chosen takes over to distribute your assets to your beneficiaries—the people you want to inherit your property. Unlike a will, a living trust does not have to go through probate court, which can save time, money, and stress for your family.

How Does a Living Trust Work?

Here’s how a living trust works step by step:

1. Create the Trust Document – With the help of an attorney, you draft a legal document that sets up the trust.
   
   
2. Transfer Assets into the Trust – You move property, bank accounts, and other assets into the trust’s name.
   
   
3. Manage the Trust – As the grantor, you can manage the assets in the trust while you are alive.
   
   
4. Plan for the Future – You name a trustee to take over if you become sick, disabled, or after your death.
   
   
5. Distribute Assets – When you pass away, the trustee distributes the trust property to your chosen beneficiaries without probate.
   
   

This process helps your family avoid delays and court battles, giving them faster access to what you’ve left behind.

Types of Living Trusts

There are two main types of living trusts:

1. Revocable Living Trust

A revocable living trust is flexible. You can make changes to it at any time during your life. For example, you can add or remove assets, change beneficiaries, or even cancel the trust altogether. Because of this flexibility, revocable trusts are very popular.

However, since you still control the trust, the assets are counted as part of your estate for tax purposes. Creditors may also be able to reach them in certain cases.

2. Irrevocable Living Trust

An irrevocable living trust cannot be changed or canceled once it is set up. When you move assets into it, you give up ownership of them. This may sound limiting, but there are benefits. Irrevocable trusts can help protect assets from creditors and may reduce estate taxes.

Many people use irrevocable trusts for specific goals, like protecting wealth for future generations or qualifying for Medicaid benefits.

Living Trust vs Will: What’s the Difference?

A question many people ask is: living trust vs will—which one is better?

Both are tools for passing on assets, but they work differently:

• Probate: A will must go through probate court, but a living trust avoids it.
  
  
• Privacy: Wills are public records, but trusts are private.
  
  
• Management During Life: A will only takes effect after death, but a living trust also covers situations where you become incapacitated.
  
  
• Flexibility: Wills are simple to update, while trusts may require more paperwork.

Why Consider a Living Trust?

Here are some reasons people in the U.S. choose to set up a living trust:

• Avoid Probate – Your heirs may receive their inheritance faster.

• Save Money – Avoiding probate can cut down on court fees.
  
  
• Protect Privacy – Unlike wills, trusts are not part of public record.
  
  
• Plan for Incapacity – Your chosen trustee can step in if you are unable to manage your own affairs.
  
  
• Control Distribution – You can decide how and when beneficiaries receive assets, such as setting rules for minor children.

Common Misunderstandings About Living Trusts

• Myth 1: Only the wealthy need a trust – Truth: Families with modest assets can still benefit by avoiding probate.
  
  
• Myth 2: A trust avoids all taxes – Truth: Revocable trusts don’t reduce estate taxes. Only certain irrevocable trusts may help.
  
  
• Myth 3: Once you make a trust, your work is done – Truth: You must keep the trust updated and transfer assets into it.

How to Create a Living Trust

If you’re considering setting up a living trust, here’s what you need to do:

1. Decide on Revocable vs. Irrevocable – Choose the type that best fits your goals.
   
   
2. List Your Assets – Decide what property, accounts, and investments to include.
   
   
3. Choose a Trustee – Select someone trustworthy to manage the trust.
   
   
4. Name Beneficiaries – Decide who will receive your property.
   
   
5. Work With an Attorney – A qualified estate planning lawyer can draft the trust correctly.
   
   
6. Fund the Trust – Transfer your assets into the trust’s name.
   
   

Trying to create a trust without legal help can lead to mistakes. An experienced estate planning attorney makes sure your trust is valid under state law and aligned with your wishes.

Final Thoughts

A living trust is one of the most effective tools for managing and protecting your assets. It helps your loved ones avoid probate, ensures privacy, and allows you to stay in control of how your property is handled.

Whether you choose a revocable living trust or an irrevocable living trust, creating one can give you peace of mind knowing your wishes will be followed.

Ready to protect your family’s future? Contact Law Office of Mary E. King, PL today to discuss how a living trust can work for you.

FAQs About Living Trusts