Living Trust Topics

by Erika Johansen

A living trust (known legally as an "inter vivos" trust) is a legal arrangement set up by an individual during his lifetime that gives another party the benefit of the assets placed in the trust. Such trusts are often used in estate planning, as they allow an individual to make a final disposition of the trust assets without the complications of probate. Each state may have its own particular requirements for living trusts; those with specific trust questions should seek professional advice.


In order to be valid, a living trust must meet legal requirements. Trusts generally require three parties: a settlor, who creates the trust and contributes the assets; a trustee, who takes legal title to the assets and controls them for the duration of the trust; and at least one beneficiary, an individual entitled to the benefits of the trust. Usually, each of these individuals must be specified in the living trust instrument, but in certain types of trusts, such as charitable trusts, the beneficiary can be a non-specific group. A living trust also requires actual assets that will be placed in the trust at the moment of trust creation. These assets, collectively, are known as the "res" of the trust.

Intent of Trust

Trusts that meet all of the requirements above may still be considered legally invalid if the settlor doesn't display the right intent in creating the trust. The law requires the settlor to intend to transfer the property for another party to use and enjoy. While the law doesn't generally require the explicit use of the word "trust," the language of the trust instrument will need to contain some language that shows the settlor's intent to create a trust arrangement.

Revocable or Irrevocable

A living trust may be either revocable or irrevocable, depending on the language used by the settlor in the trust. Revocable trusts allow the settlor to decide to revoke the trust himself at any point during his lifetime. Irrevocable trusts are intended to be permanent; they may still be revoked, but it's a more difficult process. Typically, to revoke an irrevocable trust, the settlor must also get consent from all beneficiaries to the trust.

Asset Protection

Some settlors create trusts in order to protect their assets from other parties who try to lay claim to those assets, such as bankruptcy creditors or plaintiffs who've won a judgment against the settlor. By placing the assets in trust for another and effectively relinquishing his control, the settlor may be able to insulate the assets from his creditors. However, some states don't recognize such "asset protection trusts" as valid, and those that do often place limitations on their uses. For instance, most states won't allow a settlor to protect his assets from child support claimants.


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