What is a living trust?
One of the common questions I receive as a Seattle estate planning attorney is “what is a living trust?” A living trust is a versatile tool. You maintain control over assets while you are alive and you skip probate as you transfer property at your death. It is usually referred to as a revocable living trust. A revocable trust can be changed, modified or terminated by the person who created the trust (known as a trustor or grantor). Compare that to an irrevocable trust, which cannot be terminated or modified without permission from the beneficiary of the trust.
Like a backpack
I often compare a living trust to a backpack. You might also hear a comparison to a box. Who wants a box when you can have a backpack? It’s got straps to help carry it! Anyway, a living trust starts out as an empty backpack. You can put items in your backpack. You can take items out of your backpack. The same goes for a living trust. You can put items in, like a home or a bank account. And you can take those same items out if you choose. Now say you’re hiking down a trail, like in the picture above, and you die of a heart attack. Your hiking buddy can take your backpack and continue on down the trail (of life) with it. A living trust works in a similar way to easily transfer assets at your death.
With a living trust, you designate who will take over the management of your trust after your death or during your incapacity. This person is known as a trustee. This person swoops in when needed and is able to privately transfer your property after death. This type of planning can help you avoid leaving a mess to your surviving loved ones.
What a living trust is not
Many people mistakenly believe a living trust offers asset protection. Revocable trusts do not offer asset protection because of the level of control that you have over it (Learn more about asset protection).
In summary: Living Trusts, aka Revocable Trusts, are like backpacks. Revocable trusts do not offer asset protection. Living Trusts do allow you to transfer assets easily outside of probate.
Colin Ley is a Seattle estate planning attorney. He is also the co-founder of LayRoots along with his wife, Shreya.