Updated November 01, 2023
A living trust, also known as a ‘revocable’ or ‘inter vivos’ trust, is a legal document that allows a person (trustor) to place assets under the management of a trustee to the benefit of beneficiaries (heirs). The trustee manages the assets until the trustor’s death or incapacitation, at which time the assets in the trust transfer to the beneficiaries.
Primary Benefits
Unlike a will, a trust avoids the probate process in the event of the trustor’s death. This is because the assets are moved to the trust while the trustor is still alive. Therefore, no court is involved when transferring the assets of the trust to beneficiaries.
4 Parties Involved
- Trustor (‘Grantor’ or ‘Settlor’). The person creating and funding the trust.
- Trustee. The person or business entity responsible for managing the assets in the trust during the trustor’s lifetime. For revocable trusts, this is often the same person as the trustor.
- Successor Trustee. Takes over the management of the trust if the trustee dies or becomes incapacitated. Commonly, the successor trustee’s role is to distribute and transfer the trust’s assets to the beneficiaries.
- Beneficiaries. The person or organization that receives the trust’s assets as instructed in the document.
By State
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- Washington D.C.
- West Virginia
- Wisconsin
- Wyoming
Roles
Beneficiary – The individual that benefits from the Trust at the time of the Grantor(s) death.
Settlor (or Grantor/Settlor) – The individual setting up the trust, the “trust maker”.
Trustee – The individual that is in charge of the trust. This person will have full control over the assets and can make decisions whether buy, sell, or any other related responsibilities.
Successor Trustee – The person who steps in only if the Trustee is not able to make decisions for themselves and is able to make decisions on behalf of the Beneficiary. Usually requires a note from a medical physician in order for this role to become in effect.
Irrevocable vs. Revocable
Below you can find the differences between an irrevocable and revocable trust in regards to the following important probate matters:
Estate/Probate Taxes
Irrevocable – Assets are not considered part of the Grantor’s estate.
Revocable – The assets are considered part of the Grantor’s estate.
Income Taxes
Irrevocable – Grantor does not pay individual income taxes under the typical IRS Form 1040. The trust pays its taxes either through IRS Form 1041 or issues the Grantor a K-1 (IRS Form 1065)
Revocable Trust – The income flows through to the Grantor and will appear on their annual IRS Form 1040.
Liability
Irrevocable – All assets are out of reach from any lawsuit or creditor of the Grantor.
Revocable – All assets are subject to the Grantor’s creditors.
Medicaid (Nursing Home)
Irrevocable – If assets are placed in the trust at least five (5) years before entering a nursing home they will not be subject to seizure.
Revocable – The assets are not protected and are liable to seizure by a nursing home.
Modifications
Irrevocable – No changes, amendments, or termination is allowed in most States. For example, in New York under § 7-1.9, the Grantor may terminate or amend a trust as long as the Beneficiaries agree to the changes. So it’s important to research your respective State laws.
Revocable – Any type of change or termination can be made by the Grantor at any time.
Ownership
Irrevocable – The Grantor is not the owner of the assets placed in the trust.
Revocable – The Grantor is the owner of the assets placed in the trust.
Trustee
Irrevocable – The Trustee is legally known as the person who holds title to the property on behalf of the trust beneficiaries. The trust is considered to be a separate entity and therefore the Grantor cannot be the Trustee.
Revocable – The Grantor may also be the Trustee and continue to make any decision related to the property.
Living Trust vs. Last Will and Testament
Incapacitation
Trust – If the Grantor is considered mentally disabled and can no longer handle their financial affairs the Successor Trustee named in the Trust may step in to handle those affairs
Will – The court will have to appoint someone to oversee the affairs of the Grantor and have all expenses approved by the appointed representative. Although this can be avoided by creating a Durable Power of Attorney when creating your Will.
Minor Children
Trust – Does not allow for the Grantor to make guardian arrangements for children. All Trusts end at the time of the Grantor’s death which makes any property or assets directed to minor children be placed in the parent or guardian of that child (unless otherwise stated).
Will – Allows a Grantor to name a Trustee they would prefer to be the caretaker of a minor.
Probate Process
Trust – Automatically bypasses any court or legal process and puts the transfer of the property in the sole hands of the Successor Trustee.
Will – Requires a Judge to “sign-off” on the transfer of assets to ensure it was fair to the Heirs in accordance with State law.
Property
Trust – Only property that is listed in the Trust will be transferred to the Beneficiaries.
Will – All property under the ownership of the Grantor will automatically transfer to the Heirs.
Private vs Public
Trust – Privately document held by only those involved.
Will – Must be recorded with a government office in applicable counties.
How to Create a Living Trust (6 steps)
- Identifying Your Property
- Selecting the Beneficiaries
- Select a Successor Trustee
- Writing the Form
- Signing the Form
- Storing a Living Trust
After an individual usually gets a price quote from their attorney between $800 to $2,000 they often ask themselves…
Can I Make my Own Living Trust?
Yes! Although it is always recommended to speak with an estate planner to ensure you are making the best available choices for your needs. But anyone can make a Living Trust on your own.
4. Writing the Form
Once all the roles are set in motion the form is ready to be created. You will need to choose between 1 of 2 types:
Irrevocable – Cannot be changed and acts as a separate entity from the Grantor which means they no longer are considered the owner.
Revocable – This can be modified at any time and the Grantor may also act as the Trustee and make any type of decision about the asset as necessary.
You can download any of the forms in PDF, Microsoft Word, or Open Document Text and begin completing with your personal details.
5. Signing the Form
The form is not required but highly recommended to be signed in the presence of a Notary Public. The sole responsibility of a Notary Public is to ensure that documents are signed and that the individuals signing are who they claim to be. Therefore this type of authorization guarantees to all the parties involved that the individuals who signed were able to think competently and that the signatures are genuine.
6. Storing a Living Trust
What Happens After Death?
While the Grantor is alive they will receive all the benefits ($) from the Trust. The Beneficiary will only receive the Grantor’s property after their death (unless otherwise specified).
Does a Living Trust Have to be Registered?
A living trust only has to be registered in Alaska, *Colorado, Florida, Hawaii, Idaho, Michigan, Missouri, Nebraska, and North Dakota.
*Only required if all property is not distributed at the time of the Grantor’s death
Living Trust Revocation
The Grantor/Settlor may terminate a revocable trust at any time. The first step is that all assets listed in the trust must be re-established (re-titled or even deeded) as the property of the individual. In other words, any property stated in the trust is technically under the property of the trust and not the person; you must, therefore, transfer it from the trust and back to the original owner. If you registered your trust with the local court (a procedure authorized in certain states; ), notify the court that the trust has been terminated.
Step 2. The second step is the filing of a document called Revocation of Living Trust
Be sure to have the revocation signed and dated in the presence of a notary public. The witness or notary may not be the trustee. The effective date of the revocation should be the date you sign, if possible.
In the event of complete revocation of this trust, all property or money of the trust estate, including all accumulated income, will be transferred and delivered to the grantor/settlor or original donor.
Pour-Over Will
A pour-over will is an instrument that is put in place to direct property to a trust and is often used in conjunction with a revocable trust. Pour-over wills are used as a “Catch All” for Individuals with a revocable trust who may die with probate assets even after designating property to a trust.
The pour-over will is a document that:
- Identifies the revocable trust with specificity in the will
- The trust must be executed prior to or at the same time as the execution of the pour-over will.
- Should be entirely consistent and not contain any conflicting or contradictory language inconsistent with the revocable trust.
- Directs that, upon the death of the testator, the entire estate will be distributed to the trustee of the revocable trust.
- Usually nominates the person in line to serve as trustee as executor, with the same structure for alternates as well.
State Laws – Probate Codes
Below are links that will redirect you to the State-specific probate laws related to living trusts. Some states have adopted the Uniform Probate Code which is a set of laws created in 1969 that were intended to be applied nationwide but have been adopted by 16 States.
- AL – Title 43, Chapter 8
- AK – Title 13, Chapter 16
- AZ – Title 14, Chapter 3
- AR – Title 28, Subtitle 4, Chapter 40
- CA – Division 7, Part 2, Chapter 3
- CO – Title 15, Part 2
- CT – Title 45a
- DE – Title 12, Part 4
- FL – Title 42, Chapter 731-735
- GA – Title 53, Chapter 5
- HI – Title 30a, Chapter 560
- ID – Title 15, Chapter 3
- IL – 755 ILCS 5/, Articles 6-7
- IN – Title 29, Article 1
- IA – Title 15, Chapter 633
- KS – KS Chapter 59
- KY – KRS Chapter 394–395
- LA – Title 9, §2421-2425
- ME – Title 18-C
- MD – Title 5
- MA – Part 2, Title 2, Chapter 190B
- MI – Chapters 701-713
- MN – Chapter 524
- MS – Title 91, Chapter 7
- MO – Title 31, Chapter 473
- MT – Title 72, Chapter 3
- NE – Chapter 30, 30-333
- NV – NRS Chapter 136
- NH – Title 56, Chapter 552
- NJ – Title 3B, §3-17
- NM – Chapters 45, Article 3
- NY – EPT Article 3, Part 2
- NC – Chapter 28A, Article 2a-b
- ND – Title 30.1
- OH – Title 21, Chapters 2101-2131
- OK – Title 58
- OR – ORS Chapter 113
- PA – Title 20, Chapter 31
- RI – Title 33, Chapter 33-7
- SC – Title 62, Chapter 3, Article 3
- SD – Title 29A, Chapter 3
- TN – Title 32, Chapter 2
- TX – Estates Code, Titles 1 & 2
- UT – Title 75, Chapter 3
- VT – Title 14, Chapter 3
- VA – Title 64.2, Subtitle 2
- WA – Title 11, Chapter 11.20
- WV – Chapter 41, Article 5
- WI – Chapter 851
- WY – Title 2, Chapter 7
The 16 States using the Uniform Probate Code are Alaska, Arizona, Colorado, Florida, Hawaii, Idaho, Maine, Michigan, Minnesota, Montana, Nebraska, New Mexico, South Carolina, South Dakota, and Utah.