Living Trust:

Sometimes called an inter vivos (Latin for "within one's life") trust, a trust created by a declaration of trust executed by the trustor or trustors (also called settlor or settlors) during his/her/their lifetime, as distinguished from a "testamentary trust," which is created by a will and only comes into force upon the death of the person who wrote the will. A living trust should not be confused with a "living will," which provides for medical care decisions when a person is terminally ill. While a living trust is a generic name for any trust which comes into existence during the lifetime of the person or persons creating the trust, most commonly it is a trust in which the trustor(s) or settlor(s) receive benefit(s) from the profits of the trust during their lifetimes, followed by a distribution upon the death of the last trustor (settlor) to die, or the trust continues on for the benefit of others (such as the next generation) with profits distributed to them. There are other types of living trusts including irrevocable trust, insurance trust, charitable remainder trust and some special- ized trusts to manage some parts of the assets of a person or persons.

Simply speaking a Trust is a fictitious legal entity which owns assets for the benefit of a third person (beneficiary). A Living Trust is an effective way to provide lifetime and after-death property management and estate planning. When you set up a Living Trust, you are the Grantor; anyone you name within the Trust who will benefit from the assets in the Trust is a beneficiary. In addition to being the Grantor, you can also serve as your own Trustee (Original Trustee). As the Original Trustee, you can transfer legal ownership of your property to the Trust. This can save your estate from estate taxes when you die. Just remember that it does not alleviate your current income tax obligations.

There are a variety of Trusts you can set up, which include these common choices: Living Trust, Spendthrift Trust, Bypass Trust (also know as a Life Estate or A-B Trust), Totten Trust and Testamentary Trust. The type of trust available through this service is the A-B Trust, which is designed to let the $1 million tax exemption be used by each spouse.

Through the A-B Trust, the surviving spouse can receive any portion of the decedent's estate free of estate tax. The surviving spouse never legally owns the property within the Trust because it's legally owned by the Trust. The spouse can use the assets and property within the estate with certain restrictions.

[Back to top]

Irrevocable Trust:

A trust which cannot be changed or canceled once it is set up without the consent of the beneficiary. contributions cannot be taken out of the trust by the grantor. Irrevocable trusts offer tax advantages that revocable trusts don't, for example by enabling a person to give money and assets away even before he/she dies. (opposite of revocable trust.)

[Back to top]

Revocable Trust:

A trust that may be altered or terminated during the grantor's lifetime. Since the trust may be altered at any time until the grantor's death, it is considered part of the grantor's estate and is subject to taxation. The property is passed on to the beneficiaries only after the grantor's death, and the revocable trust then becomes irrevocable.