An Inter Vivos Trust, also known as a “living trust,” is a trust established between living persons, such as between a parent and child. Unlike a Testamentary Trust, which takes effect upon the death of the person who creates the trust, an Inter Vivos Trust becomes operational during the grantor’s lifetime.
Types of Inter Vivos Trusts
Revocable Living Trust
A Revocable Living Trust allows the grantor to make changes to the trust during their lifetime. The grantor retains control over the assets and can modify or dissolve the trust at any time.
Irrevocable Living Trust
An Irrevocable Living Trust cannot be modified or dissolved once it has been established. The grantor relinquishes control over the assets placed in the trust, often done for tax advantages or asset protection.
Special Considerations
Advantages
- Flexibility: A revocable living trust can be altered to adapt to changing circumstances.
- Avoids Probate: Assets in the trust bypass the probate process, allowing for quicker distribution to beneficiaries.
- Privacy: Unlike wills, which are public records, trusts can remain private.
- Management of Assets: Provides a mechanism for managing assets in case the grantor becomes incapacitated.
Disadvantages
- Initial Setup Cost: Establishing a trust can be more expensive than creating a will.
- Maintenance: Trusts require ongoing management and legal oversight.
- No Tax Benefits: Revocable trusts do not provide tax benefits as the assets are still considered part of the grantor’s estate.
Examples of Inter Vivos Trusts
- Family Trust: A parent establishes a trust to manage the inheritance of their children during their lifetime.
- Charitable Trust: An individual sets up a trust to donate to a charity, benefiting the charity immediately and during the grantor’s lifetime.
Historical Context
Inter Vivos Trusts have been in use for centuries as a method of estate planning and wealth management. They have evolved with changes in legal frameworks and financial planning strategies to offer more flexibility and control to individuals over their assets.
Applicability
Inter Vivos Trusts are relevant for anyone looking to manage their estate effectively, provide for beneficiaries, or protect assets. They are particularly beneficial for:
- High net-worth individuals
- Families with complex inheritance needs
- Individuals seeking to avoid the probate process
Comparison with Testamentary Trust
- Timing: Inter Vivos Trusts are effective during the grantor’s lifetime, whereas Testamentary Trusts take effect upon the grantor’s death.
- Control: Inter Vivos Trusts can be revocable, allowing the grantor to maintain control during their life. Testamentary Trusts are predetermined and become irrevocable after death.
- Probate: Inter Vivos Trusts avoid probate, while Testamentary Trusts do not.
Related Terms
- Grantor: The person who establishes the trust.
- Beneficiary: The individual or entity that benefits from the trust.
- Trustee: The person or institution responsible for managing the trust.
Frequently Asked Questions (FAQs)
What is the main difference between a revocable and irrevocable living trust?
The main difference is that a revocable living trust can be modified or dissolved by the grantor during their lifetime, whereas an irrevocable living trust cannot.
Do Inter Vivos Trusts provide tax benefits?
Revocable living trusts generally do not provide tax benefits, as the assets are still considered part of the grantor’s estate. Irrevocable living trusts can offer tax advantages by removing assets from the taxable estate.
How does a living trust avoid probate?
Assets placed in a living trust are not subject to probate because the trust, not the individual, owns the assets. This allows for quicker and more private distribution to beneficiaries.
Summary
An Inter Vivos Trust is a valuable tool for estate planning, offering flexibility, control, and privacy. It is distinct from a Testamentary Trust in terms of timing and probate implications. Understanding the different types of living trusts and their respective advantages and disadvantages can help individuals make informed decisions about their estate planning needs.
References
- Internal Revenue Service (IRS). “Types of Trusts.” Accessed August 2023. IRS Trusts
- Legal Information Institute. “Trusts: An Overview.” Cornell Law School. Accessed August 2023. LII Trusts
