What is the Differences Between Lifetime Trusts and Living Trusts?

Estate planning involves using trusts to manage assets, reduce taxes, and fulfill your desires after you pass away. Two trust types that have been discussed are lifetime trust and living trust. Understanding these distinctions can help you make informed decisions regarding your estate planning approach.

This article will explore the features, advantages, and factors to consider when considering lifetime and living trusts.

What is a Lifetime Trust?

A lifetime trust, or inter trust, is established and takes effect during the grantor's lifetime. This type of trust enables the grantor to transfer assets into it, which is overseen by a trustee to benefit the trust's beneficiaries.

Key Features of Lifetime Trusts

1. Immediate Activation: Once set up and funded, a lifetime trust becomes operational. This implies that its terms manage the assets placed in the trust while the grantor is alive.

2. Flexibility: Lifetime trusts can be either changeable or unchangeable. A changeable trust allows the grantor to adjust or cancel it during their lifetime. A permanent trust, however, cannot be changed once it is set up.

3. Managing Assets: The trustee oversees and manages the assets held in the trust, ensuring that the grantor's wishes are adhered to. This can be especially helpful if the grantor becomes incapacitated and cannot handle their affairs.

4. Privacy Protection: Lifetime trusts offer privacy since they bypass the public probate process. This helps safeguard the grantor's estate from scrutiny and minimizes legal risks.

Advantages of Lifetime Trusts

1. Planning for Incapacity: A lifetime trust's advantage is its ability to manage the grantors' assets if they cannot do so themselves due to incapacity. The trustee can oversee the assets based on the grantor's instructions, ensuring stability and continuity.

2. Avoiding Probate: Assets placed in a lifetime trust avoid probate, which can be lengthy and expensive. As a result, beneficiaries can inherit quickly without legal obstacles.

3. Flexibility Feature: Revocable lifetime trusts allow changes based on evolving circumstances or desires. This may involve adding or removing assets, adjusting beneficiaries, or modifying trust terms.

What is a Living Trust?

A living trust, also known as a revocable trust, is a type of trust established by an individual during their lifetime that can be changed or canceled at any point. Like trusts created during one's lifetime, living trusts enable the individual (grantor) to transfer assets into the trust and appoint a trustee to manage them for the benefit of chosen beneficiaries.

Critical Aspects of Living Trusts

1. Revocability: Living trusts are typically designed to be revocable, allowing the grantor to make changes or revoke the trust while they are alive. This feature provides flexibility and control over the assets held in the trust.

2. Avoiding Probate: Like lifetime trusts, living trusts help bypass the probate process, ensuring asset distribution to beneficiaries without probate-related delays and expenses.

3. Incapacity Planning: Living trusts also function as a tool for planning in case of incapacity. Suppose the grantor needs help managing their affairs. In that case, the trustee can handle trust assets based on the grantor's directives, ensuring management and financial stability.

4. Privacy: Living trusts offer confidentiality by keeping assets secure. This shields the grantor's estate from scrutiny and potential legal disputes.

Advantages of Living Trusts

1. Flexibility and Control: Living trusts offer flexibility, allowing the grantor to adjust the trust to meet their estate planning goals as circumstances change.

2. Efficient Asset Distribution: One key benefit is the distribution of assets bypassing probate and ensuring beneficiaries receive their inheritance promptly and without legal complications. This can be crucial for providing for loved ones without delays.

3. Incapacity Planning: Also, like lifetime trusts, living trusts establish a plan for managing assets if the grantor becomes incapacitated, reducing disruptions and ensuring their wishes are followed.

Differences Between Lifetime Trusts and Living Trusts

While lifetime and living trusts have similarities, it's essential to understand the differences when selecting the trust for estate planning.

1. Revocability

• Lifetime Trusts: It offers irrevocable options based on the grantor's objectives. A revocable lifetime trust provides flexibility, while an irrevocable trust offers protection against creditors and estate taxes.

• Living Trusts: revocable, enabling the grantor to maintain control and make revisions during their lifetime.

2. Purpose and Usage

• Lifetime Trusts are commonly utilized for reasons such as providing for a beneficiary with needs, managing business interests, or safeguarding assets from creditors. Some lifetime trusts have a nature that can offer legal and financial safeguards.

• Living trusts are only used for general estate planning purposes, such as avoiding probate, handling assets during incapacity, and ensuring asset distribution to beneficiaries.

3. Flexibility

• Revocable lifetime trusts provide a level of flexibility to living trusts. However, irrevocable lifetime trusts offer less flexibility in return for increased asset protection and tax advantages.

• Living trusts offer high flexibility, allowing the grantor to adjust the trust as circumstances or preferences change.

How to Decide Between a Lifetime Trust and a Living Trust?

Selecting the type of trust depends on your specific estate planning objectives and personal situation. Consider these factors:

1. Estate Size and Complexity

• Lifetime Trusts may be more suitable for estates or situations requiring asset protection or tax planning strategies.

• Living Trusts are well suited for general estate planning and probate avoidance for smaller-sized estates.

2. Asset Protection and Tax Planning

• Lifetime Trust: An irrevocable lifetime trust can offer protection against creditors and potential tax advantages, making it a suitable option for individuals with assets or specific tax planning requirements.

• Living Trust: While providing creditor protection and fewer tax benefits, a living trust allows for increased flexibility and control over lifetime trusts.

3. Personal Preferences

• Lifetime Trust: Opting for a lifetime trust is ideal if you desire particular asset or beneficiary provisions.

• Living Trust: If your main focus is on flexibility and control, a living trust may be the choice.

Conclusion

Lifetime and living trusts present advantages in estate planning; however, the optimal selection depends on your objectives and situation. By comprehending the distinctions and perks of each trust type, you can make an educated decision that aligns with your requirements.

At Doane & Doane, we specialize in assisting clients with the intricacies of estate planning. Our skilled attorneys can help you select and establish a trust to safeguard your assets while ensuring your wishes are honored. Contact us today to discover how we can assist you with your estate planning needs.