What is a Living Trust and How Does It Work?

Did you know that only about 33% of Americans have an estate plan? That means most people don’t have a plan for what happens to their money and property after they pass away. A living trust can help solve that problem—and more people are starting to use it to protect their families and their futures.

In this article, we’ll explain what a living trust is, how a living trust works, the different types of living trusts, and how it compares to a will. Whether you're planning for your future or helping a loved one, this guide makes it easy to understand.

What Is a Living Trust?

A living trust is a legal document that lets you place your assets—like your house, bank accounts, or investments—into a trust while you’re still alive. You stay in control of everything and can make changes at any time. When you pass away, your assets are smoothly transferred to the people (called beneficiaries) you named in the trust—without going through court.

Why is this important?

Without a living trust, your loved ones may need to go through probate, which is a long, expensive court process to settle your estate. A living trust helps skip that.

How Does a Living Trust Work?

Here’s how a living trust works step-by-step:

1. Create the trust document: You (the grantor) work with a lawyer to write the trust document. This says who will get your assets and who will manage them (the trustee).
   
   
2. Fund the trust: You move your assets into the trust. This could include your home, savings, or even personal items like jewelry or art.
   
   
3. Manage the trust: While you're alive, you usually act as your own trustee. That means you’re still in charge of everything in the trust.
   
   
4. Distribute assets after death: When you die, the new trustee (someone you choose in advance) gives your assets to the beneficiaries—just like you instructed. No court needed.
   
   

This setup makes sure your wishes are followed and makes things easier for your loved ones during a tough time.

Types of Living Trusts

There are two main types of living trusts: revocable living trusts and irrevocable living trusts. Let’s break down the difference.

1. Revocable Living Trust

A revocable living trust is the most common type. You can change it, add to it, or even cancel it at any time.

Pros:

• You stay in control of your assets.
  
  
• You can update the trust as life changes.
  
  
• It avoids probate after death.
  
  

Cons:

• It doesn’t protect your assets from creditors.
  
  
• It won’t reduce estate taxes in most cases.
  
  

2. Irrevocable Living Trust

An irrevocable living trust is more permanent. Once it’s set up, you usually can’t change it without court approval or agreement from the people involved.

Pros:

• Helps protect assets from lawsuits or creditors.
  
  
• May lower estate taxes.
  
  
• Good for Medicaid planning or giving money to charities.
  
  

Cons:

• You lose control over the assets in the trust.
  
  
• Harder to update once finalized.
  
  

So which one is right for you? It depends on your goals. If you want flexibility, go with a revocable living trust. If your goal is asset protection or reducing taxes, consider an irrevocable living trust with legal guidance.

Living Trust vs. Will: What’s the Difference?

Many people ask, “Do I need a living trust or a will?” The truth is, both have their place—but they work in different ways.

In many cases, people have both a living trust and a will. The will can take care of things not included in the trust (like naming a guardian for kids), while the living trust handles your financial assets.

Why Choose a Living Trust?

Creating a living trust can be one of the smartest moves in your estate plan. Here’s why:

• Avoids probate: Saves time, money, and stress for your family.
  
  
• Keeps things private: No court records mean your personal details stay confidential.
  
  
• Gives you control: You decide who gets what, when, and how.
  
  
• Manages your assets if you become ill: Your chosen trustee can step in and help.
  
  
• Works across states: Useful if you own property in different places.
  
  

Real-Life Example: Meet Susan

Let’s say Susan, a 65-year-old widow, owns a house, has retirement accounts, and wants to leave everything to her two children. She creates a revocable living trust, places her assets in it, and names her daughter as the backup trustee.

Ten years later, Susan passed away. Because everything was in the trust, her daughter simply followed the instructions in the document. There’s no court delay, no legal fight, and no big fees. Her children quickly receive their inheritance and are able to grieve without extra stress.

Do I Still Need a Lawyer?

While you can find DIY options online, it’s always best to work with an estate planning lawyer—especially if:

• You own a business.
  
  
• You have complex family relationships.
  
  
• You own property in multiple states.
  
  
• You want to set up an irrevocable living trust.
  
  

A lawyer will ensure everything is legal, complete, and works the way you want.

Final Thoughts

A living trust gives you peace of mind. It lets you protect your assets, skip the court process, and take care of your family even after you're gone. Understanding how a living trust works and the types of living trusts available can help you make the best choice for your future.

Remember, estate planning isn’t just for the rich. It’s for anyone who wants to make life easier for their loved ones.

Ready to protect your legacy? Contact Doane & Doane today to get started on your living trust plan.