A living trust is a legal arrangement you create while you are alive that holds title to your property, names a trustee to manage it, and passes those assets to your chosen beneficiaries without going through probate court. You control the trust as trustee during your lifetime and name a successor to take over if you become incapacitated or die.
What Is a Living Trust and How Does It Work?
A living trust, also called an inter vivos trust, is created and funded during the person's lifetime rather than through a will. The person who creates it is the settlor or grantor. That same person typically serves as the initial trustee, keeping full control over the property while alive and competent.
Under the general law of trusts, a valid trust requires a settlor with capacity, a clear intention to create the trust, identifiable trust property, and a definite beneficiary. Once the settlor signs the trust document and retitles assets into the trust's name, the trust becomes the legal owner of that property, even though the settlor still benefits from and controls it. See the Cornell Legal Information Institute's definition of an inter vivos trust for the underlying legal concept.
If you are ready to set one up, FastWill's online trust builder walks you through creating and funding a living trust step by step.
Key Takeaways
- A living trust is created and funded while you are alive, unlike a will, which only takes effect at death.
- You can act as your own trustee and keep full control until you become incapacitated or pass away.
- Assets titled in the trust's name generally avoid probate court, saving your family time and legal fees.
- A living trust only protects the assets you actually transfer into it, so funding the trust is as important as creating it.
Revocable or Irrevocable: Which Type of Living Trust Do You Have?
Most living trusts are revocable, meaning the person who created it can change, amend, or cancel it at any time while alive and competent. Because the grantor keeps this level of control, the Internal Revenue Service treats a revocable living trust as a grantor trust, meaning its income is reported on the grantor's own tax return rather than a separate trust return. The grantor trust rules under 26 U.S.C. Section 671 govern this tax treatment.
An irrevocable living trust cannot be changed once signed, except in limited circumstances. It offers stronger asset protection and can help with Medicaid or estate tax planning, but you give up control over the property. For a full breakdown of the differences, see our guide on revocable versus irrevocable trusts.
What Can You Put in a Living Trust?
Most living trusts hold real estate, bank and brokerage accounts, business interests, and valuable personal property. Retirement accounts like 401(k)s and IRAs are usually kept out of a trust because retitling them can trigger unwanted tax consequences, and they already pass by beneficiary designation.
- Real estate, including your primary home and rental property
- Bank accounts, certificates of deposit, and brokerage accounts
- Business interests such as LLC membership units or corporate stock
- Valuable personal property like art, collectibles, or vehicles
How Do You Actually Fund a Living Trust?
Creating the trust document is only step one. You then have to retitle each asset so the trust, not you personally, is the legal owner. This usually means signing a new deed for real estate, changing account ownership at your bank or brokerage, and updating title on vehicles or business interests. Our detailed walkthrough on how to fund a trust covers the process asset by asset.
Does a Living Trust Avoid Probate?
Yes, assets properly titled in a living trust bypass probate because the trust, not the deceased person individually, legally owns them. There is nothing for a probate court to transfer, since the trustee already has authority to manage and distribute the property under the trust terms. Read how a trust avoids probate for a step-by-step explanation of why this works.
Living Trust vs. Will: Do You Need Both?
Most people with a living trust still need a will, specifically a pour-over will, to catch any assets that were never transferred into the trust before death. The trust handles distribution and avoids probate for funded assets, while the pour-over will acts as a backup safety net. See do I need a trust or just a will to decide which combination fits your situation, and what's the difference between a will and a trust for a side-by-side comparison.
A properly funded living trust is one of the most direct ways to keep your family out of probate court. FastWill's trust package gives you the trust document and clear funding instructions in one place.
Frequently Asked Questions
Does a living trust protect my assets from creditors?
A revocable living trust generally does not protect assets from your own creditors while you are alive, because you still control and can revoke it. Irrevocable trusts can offer stronger creditor protection, but they come with a real loss of control.
How much does it cost to set up a living trust?
Costs vary widely depending on whether you use an attorney or an online platform, and on how complex your assets are. The bigger cost driver is usually the time it takes to fund the trust correctly, not the document itself.
Do I still need a will if I have a living trust?
Yes. A pour-over will catches any property you forgot to transfer into the trust, and it is also where you name guardians for minor children, something a trust cannot do.
Can I be my own trustee of my living trust?
Yes, most people name themselves as the initial trustee and retain full control. You then name a successor trustee to step in if you become incapacitated or die.
What happens to a living trust when I die?
The successor trustee named in the trust document takes over immediately, without court involvement, and distributes or manages the trust property according to the terms you set.
