The most common kind of living trust, the simple revocable living trust, is essentially a substitute for a will—people create it while they’re alive, to leave property at their death. The main reason to use a living trust instead of a will is probate avoidance. Unlike property left through a will, property left through a trust doesn’t need to go through probate before it can be transferred to the people who inherit it. So using a trust saves surviving family members the money, time, and effort that would otherwise be spent on probate.
A living trust has other advantages as well. It’s private (unlike a will, which becomes a matter of public record when it’s filed with the local court after death), and it can take effect during life if the person who made it becomes incapacitated and needs help managing trust property.
Every living trust must have a settlor, a trustee, and a beneficiary.
A trust is a legal arrangement among these people. With a living trust, the settlor transfers assets to the trust; the trustee manages them; and the beneficiary eventually inherits them.
With a simple probate-avoidance living trust, the grantor is also the trustee. That lets grantors keep control over property they transfer to the trust. If they want to take property out, revoke the trust entirely, or name different beneficiaries, they can do so at any time.
The terms of the trust arrangement are written down in a document called a trust instrument. It identifies the settlor, trustee, and beneficiary, lists items of trust property, and states how those items are to be managed and when they are to be transferred to the trust beneficiary.
The trust instrument also names one more crucial person: the successor trustee. This is the person who serves as trustee after the first trustee, the settlor, dies.
Many people can create their own simple living trust without hiring an attorney. There are options to create these documents online or using software.
After the settlor dies, the trust becomes irrevocable—in other words, it can no longer be changed. Its terms must be carried out by the successor trustee. It’s the successor trustee’s job to collect and inventory trust property and then distribute it to the trust beneficiaries, following the instructions in the trust instrument. In many cases, this can be done within a few weeks or months. By contrast, a typical probate court proceeding takes from six months to a year in most states.
Often, the successor trustee is also the executor of the deceased person’s will. (Most people who use a probate-avoidance living trust also leave a will.) But if different people fill each role, they must cooperate. For example, they’ll need to figure out who will pay which bills and who will file the deceased person’s final income tax returns.