What Is a Living Trust?
A living trust is a trust created by a person during their lifetime. In a revocable living trust, the person who creates it (the settlor or grantor) can change or cancel it, and a trustee manages the trust property for the beneficiaries. Only property actually owned by the trust is controlled by it, and trust-owned property can pass at death without probate. For federal income tax purposes, a revocable trust is a grantor trust taxed to the grantor. Trust rules come from state law; Virginia's Uniform Trust Code is used as an example here.
What the law says
- Example (Virginia, Uniform Trust Code): a trust may be created by transferring property to a trustee during the settlor's lifetime, or by the owner declaring that they hold identified property as trustee. Code of Virginia § 64.2-719
- Example (Virginia): the settlor is the person who creates or contributes property to a trust, and a trust is "revocable" if the settlor can revoke it without the consent of the trustee or anyone with an adverse interest. Code of Virginia § 64.2-701
- Example (Virginia): unless the trust document expressly says the trust is irrevocable, the settlor may revoke or amend it; this default applies to trusts created by documents signed on or after July 1, 2006. Code of Virginia § 64.2-751
- Example (Virginia): while a trust is revocable, the beneficiaries' rights are subject to the settlor's control, the trustee's duties are owed only to the settlor, and the trustee may follow the settlor's directions even if they differ from the trust terms. Code of Virginia § 64.2-752
- Example (Virginia): a trustee who accepts the role must administer the trust and invest its assets in good faith, following the trust's terms and purposes and the interests of the beneficiaries. Code of Virginia § 64.2-763
- Example (Virginia): within 60 days after a trustee learns that a revocable trust has become irrevocable, such as by the settlor's death, the trustee must notify the qualified beneficiaries of the trust's existence, the settlor's identity, and their right to request a copy of the trust document and a trustee's report. Code of Virginia § 64.2-775
- Only property titled in a person's name alone is part of the probate estate; a living trust can avoid probate if all of the person's assets are owned by the trust, and at death title to those assets passes according to the terms of the trust. Montcalm County (Michigan) Probate Court, Decedent's Estates
- For federal income tax purposes, all revocable trusts are grantor trusts; the grantor is treated as the owner of the assets, the trust is disregarded as a separate tax entity, and all income is taxed to the grantor. IRS, Abusive Trust Tax Evasion Schemes - Questions and Answers
- A grantor trust is not required to file a Form 1041 trust income tax return, provided the individual grantor reports all of the trust's income and allowable expenses on their own Form 1040 or 1040-SR. IRS, Abusive Trust Tax Evasion Schemes - Questions and Answers
- A living (inter vivos) trust is created by a living person and can be revocable or irrevocable; a testamentary trust is created by a will and is irrevocable because it begins at the death of the person who made the will. IRS, Abusive Trust Tax Evasion Schemes - Questions and Answers
FAQ
Does a will avoid probate?
No. A will may make probate easier, but property titled in the person's name alone still goes through probate. A living trust can avoid probate for assets owned by the trust.
Can I change or cancel my living trust?
Under Virginia's Uniform Trust Code, the settlor may revoke or amend a trust unless its terms expressly make it irrevocable. The settlor can use the method in the trust document or, if none is given, any method showing clear and convincing evidence of intent.
Can my agent under a power of attorney change my trust?
In Virginia, an agent may exercise the settlor's powers to revoke, amend, or distribute trust property only if the power of attorney expressly authorizes it and the trust does not expressly prohibit it.
Does a revocable living trust need its own tax return?
Generally not while it is a grantor trust, as long as the grantor reports all of the trust's income and allowable expenses on their own Form 1040 or 1040-SR.
What does a successor trustee have to tell the beneficiaries?
In Virginia, a trustee must keep qualified beneficiaries reasonably informed, give a copy of the trust document on request, and send at least annual reports of trust property, receipts, and payments to beneficiaries entitled to distributions.
Who decides whether a trust is revocable?
The IRS says state law and the trust document determine whether a trust is revocable or irrevocable.
Related
- Do I Need a Lawyer to Make a Will?
- How Much Does a Probate Lawyer Cost?
- How to Make a Will
- What Is a Durable Power of Attorney?
- What Is a Medical Power of Attorney?
- What Is a Power of Attorney?
- What Is a Quitclaim Deed?
- What Is an Executor?
- What Is Probate?
- Will vs. Trust: What's the Difference?
- Wills, Estates & Deeds by state
General legal information, not legal advice. Laws change and local rules can differ; check the linked official source or talk to a lawyer about your situation.