Living Trust Definition
A Living Trust is simple an agreement – a relationship – the grantor has with the trustee. The word “trust” will refer to the written document that defines the relationship between the grantor and the trustee. There are many types of trusts. Each one is designed to achieve a specific purpose.
Living Trust Purpose
A living trust is a special type of trust used to avoid probate, reduce estate taxes, preserve your privacy, and manage your financial affairs. When you establish a living revocable trust for yourself, you will probably be the grantor, the trustee, and the beneficiary all at the same time.
The trustee actually owns the property or holds title to the property in his or her living trust in a capacity as trustee, not in his or her capacity as an individual. So, when John Doe is acting as trustee for his own living revocable trust, he will open a checking account (he will hold title to the checking account) as follow: “John Doe, Trustee for the John Doe Living Revocable Trust dated July 4, 2012.”
Although the trustee holds title to the property in his or her living trust as trustee, the law and everybody else recognized that the property rally doesn’t belong to the trustee. The property belongs to the trust, and the trustee is just the caretaker. You don’t have to worry that the trust property will be lost if the trustee gets sued or even goes bankrupt. Everybody knows the property isn’t the trustee’s. The trustee is just “holding title” to the property for the benefit of the beneficiary.
The living trust document tells the trustee what he or she is supposed to do with the property, and the trustee is bound by law to follow the exact instructions given by the trust.
In your living trust, you will serve as your own trustee as long as you are alive and able to serve. You will also be the beneficiary, so there is no reason for you to be afraid of using a living revocable trust. Living trusts are becoming more and more popular, especially in the Western United States. I teach classes all over the U.S. and I’m seeing living trusts become a viable estate planning tool in every state. It’s also know by other names such as “A-B Trust” a “C Trust” a “Family Trust” a “Shelter Trust” a “Common Trust” a “QTIP” and I’ve even heard it called a “Loving Trust.”