A living trust describes a trust designed to transfer assets to beneficiaries upon the death of the owner/grantor, which is established during the life of the grantor.
They can take several forms, but most common ones are categorized as either revocable or irrevocable. Living trusts have a similar effect to a Last Will and Testament, both being legal documents that stipulate how the decedent would like property to be divided amongst beneficiaries upon the death of the owner or grantor of the trust.
They are sometimes called inter-vivo trusts, meaning that they are created during the life of the grantor, as opposed to testamentary trusts, which are described and decided upon by the grantor during his or her life but are not created until the grantor has died.
Living trusts can be revocable or irrevocable. Revocable trusts are not protected form the creditors of the grantor, in most cases, because they allow the grantor to access the funds for their own use. Irrevocable trusts are protected from the creditors of the grantor because the principal amount cannot ever be accessed by the grantor again without jumping through many hoops.
The principal amount which is placed into the irrevocable trust will forever remain the property of the beneficiaries. Any interest or income derived from the irrevocable trust can still be used by the grantor, as long as the principal amount is untouched.
Benefits of using a revocable trust instead of a will include the fact that it is private and keeps the estate out of probate. Irrevocable trusts can actually transfer sums out of the estate altogether for purposes of avoiding estate taxes, as well as other reasons.
What is the Difference Between a Will and a Trust?
What is a Living Will?