Any trust created while the grantor is alive is a “living trust” but the term is often used to describe revocable trusts, which can be rescinded or changed. During the grantor’s (trust creator’s) lifetime, he’s often the trustee and the beneficiary, so control over trust assets is retained.
Avoiding probate usually is the main appeal for living trusts. Trusts also can provide a gentler transition if the grantor becomes incapacitated. A co-trustee or successor trustee can step in to manage the trust assets. With a living trust, you can avoid a conservatorship, a process that is extremely cumbersome, costly, and frustrating. Within the privacy of a trust, the change of control over valuable assets may be much smoother.
Many people prefer the idea of a successor trustee, so they can remain in control as sole trustee. However, adding a co-trustee may be easier to accept, rather than resigning and letting a successor trustee take control of the trust assets. Once a co-trustee is in place, he can step in if the trust creator becomes incompetent.
When you create a trust during your lifetime, it will be in one of two categories:
* Irrevocable trusts. This is a permanent arrangement so assets transferred into the trust generally are out of your reach. Trust assets also may be beyond the reach of creditors and estate tax collection. Typically, irrevocable trusts are designed to protect loved ones, who are the trust beneficiaries.
* Revocable trusts. With these trusts, you can retain control over trust assets and collect investment income from those assets. If you change your mind, you can reclaim the trust assets so they’re held in your own name again.
Revocable trusts provide protection against possible incompetency. A successor trustee or co-trustee can take over the management of trust assets, if you can’t manage your finances. Also, revocable trust assets can pass to designated recipients without going through probate.
In order to obtain these advantages, you will incur costs to create and maintain a revocable trust. Moreover, you will have to take the time and effort to retitle assets so that they’re legally held by the trust.