As the saying goes, "Don’t put your trust in money, but your money in trust." A "living" or ("inter vivos") trust is set up during the lifetime of the person (the "settlor") giving away money or other assets. The settlor gives money to a "trustee" to hold for named "beneficiaries."

Why Would I Want an Inter Vivos Trust?

The main purpose of setting up a living trust is to avoid probate fees after the settlor dies. During probate, players such as courts, lawyers, and executors ask for money as they follow the complicated probate code, and these costs will sap the estate. The idea of a living trust is that the money has already been legally distributed before death according to contract law, thus removing the need for probate.

There are two kinds of living trusts: revocable and irrevocable. An irrevocable trust, as the name suggests, is not amendable. It is money that the settlor has completely given away. This can save not only on probate fees, but on taxes too.

The typical living trust, however, is revocable, meaning that the assets still legally belong to the settlor. Furthermore, the settlor can change or modify the trust terms at any time. The living trust becomes an irrevocable trust upon the settlor’s death because the settlor is no longer able to revoke the trust; trusts cannot be revoked by wills.

Can an Inter Vivos Trust Be Modified?

The settlor can amend an inter vivios trust while the settlor is alive. Trusts can be amended after a settlor has passed away if the amendment advances a purpose of the trust or if circumstances change such that the settlor was unaware of when the settlor made the trust.

For instance, if the settlor creates a trust to provide for his children and a child is born to the settlor after his death, the new child can take from the trust. The settlor created the trust for his children so allowing the new child to take from the trust would advance trust purposes. The child’s birth is also a circumstance that the settlor might have been unaware of at the time of his death or trust creation.

How Can an Inter Vivos Trust Be Modified?

The first way to modify a revocable living trust is with an attachment – simply rewrite the trust using the same form as the original, notarize the signatures, and file it with an attorney.

The second way to amend a revocable living trust is to draft a "restatement" of the trust. This is when the whole trust is re-drafted with a clean revision. This will need to be done once the trust has accumulated a number of confusing attachments.

Can an Inter Vivos Trust Be Terminated or Revoked?

Generally, the settlor can revoke an inter vivos trust while the settlor is alive. After the settlor has died, the trust can be revoked once the purpose of the trust has been fulfilled. For example, if a trust was created to provide for a child’s education and the child graduates from college, the trust can be terminated. Note that all trust purposes must be fulfilled. If the purpose of the trust is to for the child’s education and to provide for the child’s comfort of living, the trust cannot be terminated until the child is also deceased.

If a trust is terminated, the funds will be distributed according to the settlor’s intent.

What If Administering a Trust Is More Expensive Than the Trust Itelf?

Most courts will terminate a trust which requires more money to administer than the funds it contains. Some states impose a minimum amount of funds that a trust should have or the trust will be terminated. For example, California requires that at least $40,000 be in the trust, or that the trust’s market value is not outweighed by the cost of administering the trust.

Should I Contact an Attorney?

If you would like to establish or amend a living trust, you should contact an experienced estate planning lawyer.