A revocable living trust, also known as an inter vivos trust, is a legal entity established for the purpose of holding title to a person's assets for that person's lifetime benefit, to be transferred upon his or her death to the person's family or beneficiaries. Revocable living trusts are private, can be easily revised during a person's lifetime, and after the creator of the trust dies, the assets in the trust pass to the person's designated beneficiaries without probate. A revocable living trust has various tax advantages, including its ability to double the maximum amount that can pass free of estate tax for a married couple. A revocable living trust can also be prepared with special distribution requirements for particular beneficiaries, requiring those beneficiaries to meet certain educational or age requirements, for example, in order to qualify to receive their distributions from the trust. Some living trusts contain value statements, ethics standards, or special safeguards, restrictions, or admonishments for some or all of the beneficiaries. Private revocable living trusts are widely viewed as the most efficient way to pass assets on to the next generation, avoiding most of the problems and costs generally associated with a standard will.
Living trusts are generally considered to be grantor trusts under the IRS rules, and as such utilize the social security numbers of the grantors as the tax identifications number for the trust. Of course, the creator of a living trust must continue to file his or her individual 1040 federal income tax return on an annual basis, and may use the 1040 federal income tax return to account for any income realized or earned from an asset within the living trust. In order for a living trust to be effective, the creator of the trust must title assets appropriately in the name of the trust, or the asset may still go through probate upon death.
Some people consult an attorney to establish their living trusts, and then forget to title their subsequently acquired assets in the name of the trust, thus necessitating a probate upon their death. Most living trusts require a surviving spouse to accomplish certain basic tasks upon the death of the first spouse to die. Complex trusts, like the AB Trust, or an ABC or QTIP Trust must be divided into various subtrusts within 9 months after the death of the first spouse to die. Persons with living trusts should still visit their estate planning attorney every few years to make sure their living trust and other estate planning documents are in good order, properly funded, and are being properly administered.