An inter vivos trust, also referred to as a “living trust”, is a type of trust that is often used in estate planning. As indicated by the title, one of the primary characteristics of an inter vivos trust is that its assets can be distributed to the entitled beneficiaries while the creator of the trust (i.e., the settlor) is still living.
This is vastly different from the way that most estate management tools operate in that they are usually only enforceable upon the death of the estate holder. For example, the contents of a standard will can only be distributed after the creator of the will (i.e., the testator) dies.
In contrast, the way that an inter vivos trust works is that first the settlor will need to appoint a trustee. A trustee is the person who is appointed to oversee and manage the contents of a trust. As soon as a trustee has been appointed and takes over as the fiduciary, the trust contents can immediately be distributed to the assigned recipients of the trust (i.e., the beneficiaries).
Accordingly, this means that the assets being held in an inter vivos trust will not pass directly from the settlor to the trust beneficiaries like they would with other types of trust arrangements. Instead, the appointed trustee will need to manage the assets of the inter vivos trust for a certain period of time first.
For example, an inter vivos trust may be created when a settlor’s beneficiaries are too young to manage the trust property themselves. The settlor can place specific conditions on the inter vivos trust to ensure that the assets in the trust are not released until the beneficiaries reach a certain age and are mature enough to act responsibly.
In general, there are two main types of living trusts: irrevocable and revocable. The contents of an irrevocable trust cannot be amended, modified, terminated without the permission of the trust’s named beneficiaries.
With an irrevocable trust, the grantor is no longer considered the owner of the assets since they have transferred all ownership rights over to the trust while they are still alive. This can help reduce the amount the estate will need to pay on taxes and probate fees.
On the other hand, the assets in a revocable living trust are still considered to belong to the settlor. As such, the settlor can continue to amend or modify the terms of trust at any point during their lifetime. The majority of inter vivos trusts are revocable and will remain that way until the settlor dies.
Once the settlor is deceased, however, a living trust will immediately become irrevocable. This is because living trusts need permission from the settlor to make changes and the settlor will not be alive to provide consent.
Why Would I Want an Inter Vivos Trust?
So, why choose to form a living trust as opposed to another type of estate planning tool? There are many great answers to this question. The main reason as to why a person would want to set up an inter vivos trust is to be able to avoid having to pay probate fees after an estate holder dies.
For instance, when an estate has to go through the probate process, it can potentially lose a high percentage of its value. This is due to the fact that those who oversee the probate process, such as probate courts, attorneys, and estate executors, will need to be paid certain fees in accordance with the probate code and standard business policies.
With an inter vivos trust, however, the funds or assets will have already been distributed before the death of the estate holder. This arrangement helps avoid the need for probate and thus eliminates having to pay the necessary fees and costs associated with the probate process.
Can an Inter Vivos Trust Be Modified?
As previously mentioned, the settlor can modify the terms of an inter vivos trust while they are still alive. However, after the settlor has died, the trust can only be amended if the changes would advance the purpose of the trust or if circumstances arise that the settlor could not foresee or was unaware of at the time they created the trust.
For example, if the settlor set up an inter vivos trust to provide for their children and they die before their last child is born, the settlor’s new child will be allowed to take from their portion of the trust. This is possible because the modification would advance the trust’s purpose in that the settlor created the trust for their children and the new child is part of that group.
Additionally, the child’s birth may also constitute a change in circumstances if the settlor was unaware that their spouse was pregnant at the time of their death or when the trust was formed.
How Can an Inter Vivos Trust Be Modified?
There are two main ways to modify a revocable inter vivos trust. The first way to modify a revocable inter vivos trust is to simply include an addendum and attach it to the original trust documents. The settlor will need to rewrite the trust in the same manner as the original, sign and have the new documents notarized, and then file it with their attorney.
The other method that a settlor can use to modify an revocable inter vivos trust is to draft a “restatement” of the trust. A restatement replaces the original trust documents with a new version. This method is often used when a trust contains a number of confusing attachments.
Can an Inter Vivos Trust Be Terminated or Revoked?
As discussed above, the terms of a revocable living trust can still be terminated or revoked, so long as the settlor is alive. If the settlor is already deceased, then either all of the beneficiaries must agree to the changes or must wait until the purpose of the trust has been achieved.
For instance, if a settlor created a living trust for the purposes of paying for their child’s college tuition and the child has graduated from college, then the trust can be terminated. Again, all of the trust’s conditions must be fulfilled before it can be terminated or revoked.
Now, if the purpose of the trust was twofold and was meant to provide money for both college tuition and as a means for the child to live comfortably, then the trust cannot be terminated or revoked until the settlor’s child has died as well.
Additionally, it is important to note that once a trust is terminated, any of its remaining funds will be distributed in accordance with the settlor’s original intentions.
What If Administering a Trust Is More Expensive Than the Trust Itself?
In general, most courts will decide to terminate a trust that is worth less than the amount of money it will take to distribute the trust property. Some states even have a rule that a trust will be terminated if it does not contain the set minimum amount of funds or property imposed by a state statute.
For example, a statute in California provides that a trust will be terminated if it does not have a value of at least $40,000, or when the market value of a trust does not outweigh the cost of administering it. Therefore, it is very important to review the rules of living trusts in a particular state to make sure that the trust will not be terminated and that the trust property can still be administered to its beneficiaries.
Should I Contact an Attorney?
Generally speaking, the process to set up a trust can be very difficult to navigate without an attorney. The trust documents must comply with many special legal requirements and must be tailored in a way that conforms to the type of trust being formed. The legal requirements to create a living trust are even more complex than those for a standard trust. This is especially true when it comes to writing the conditions of a revocable living trust.
Therefore, if you want more information about trusts or are ready to set up a living trust, you should hire a local estate planning attorney for further assistance. An experienced estate planning attorney will be able to recommend the best type of estate planning document to use based on your individual circumstances. Your attorney can help you draft, revise, and review the necessary legal documents that are required to form a valid living trust.
Your attorney can also help you amend or modify the terms of a living trust if it is revocable. If your living trust is not revocable, your attorney can determine if there are any ways available that may allow you to change the terms of an irrevocable living trust. Additionally, your attorney can provide legal representation in court if you are involved in a dispute or lawsuit that involves an inter vivos trust, regardless of whether it is revocable or irrevocable.