An inter vivos trust, also known as a “living trust,” is a kind of trust that is often used in estate planning and administration. As indicated by its name, one of the major features of an inter vivos trust is that its contents can be allocated to the entitled beneficiaries while the settlor (i.e., the trust’s creator) is still alive.
This “life” quality is in direct contrast to the characteristics of other types of common estate planning tools, which are usually only enforceable upon an estate holder’s death (e.g., a will document).
An inter vivos trust operates because the property owner will first select a trustee. A trustee is an individual who is selected to oversee the property or assets being held “in trust.”
Once the trustee has taken over this duty, the property will then be distributed to the trust’s assigned beneficiaries (or recipients). Thus, the result of this arrangement means that the property does not directly pass from the property owner to the beneficiary. Instead, it is supervised for a certain amount of time by the trustee.
In addition, there may be many other reasons for choosing this type of trust setup. For example, an inter vivos trust may be created if the beneficiaries are too young to be accountable for the trust property or when conditions are attached to how the trust property or funds are released.
How Is a Trust Created?
The basics of trust creation are relatively straightforward. To form a trust, the property owner (called the “trustor,” “grantor,” or “settlor”) transfers legal ownership to a family member, professional, or institution (called the “trustee”) to oversee that property for the benefit of another individual (called the “beneficiary”). The trustee often accepts compensation for their management role.
Trusts create a “fiduciary” relationship running from the trustee to the beneficiary, meaning that the trustee must act solely in the beneficiary’s best interests when dealing with the trust property. If a trustee does not live up to this duty, the trustee is legally accountable to the beneficiary for any damage to their interests.
The grantor may act as the trustee and maintain ownership instead of transferring the property, but they still must act in a fiduciary capacity. A grantor may also name themself as one of the trust’s beneficiaries. However, in any trust agreement, the trust cannot become effective until the grantor transfers the property to the trustee.
For example, a grantor transfers money to a bank as a trust company or trustee for the grantor’s kids. The bank is instructed to pay the kids’ college costs as needed, and the bank carefully supervises the money to ensure there are funds available for this objective. They are fulfilling their fiduciary duty, and the kids do not have possession of the funds and cannot use the funds for any other purposes.
What Are Some Characteristics and Limits of an Inter Vivos Trust?
In general, inter vivos trusts are generally subject to the typical legal rules and requirements for creating a trust. For instance, there must be a settlor, a trust property (i.e., the “res”), a designated trustee, and at least one beneficiary to form a basic trust.
As mentioned, one of the critical features of an inter vivos trust is that its property can be dispersed while the settlor is still alive.
Some other positive features of an inter vivos trust may include that:
- They are relatively easy to set up;
- Its structure allows the parties to skip the probate process;
- The beneficiary might be able to use the trust property sooner than they could as the recipient of a gift or inheritance from a will; and
- They can potentially decrease the property holder’s estate taxes since the trust property will no longer be included as part of their estate.
On the other hand, inter vivos trusts also have some limitations.
Some of these restrictions may include that:
- Any property distributions typically cannot be changed (e.g., it is usually not feasible or advisable to attempt to reclaim the property after it has already been distributed);
- The trust may be amended between the time of the trust creation and the testator’s passing, which could affect what a beneficiary acquires; and
- The laws governing inter vivos trusts will vary under the jurisdiction rules in which the transaction occurs.
Thus, it is undoubtedly in a person’s best interest to carefully revisit the pros and cons of inter vivos trusts before deciding whether to form one. This will usually entail obtaining the advice of an estate attorney who can help them decide if an inter vivos trust is the optimal estate planning solution for their particular situation.
What If There is a Dispute About an Inter Vivos Trust?
Various events could happen that may lead to a dispute over an inter vivos trust. One common type of dispute that might arise with this kind of trust is when a beneficiary contests against the terms of the trust.
Another frequently disputed issue is when the property owner does not clearly define the property in question, leading to significant confusion during the distribution process. A conflict may also arise when the trustee has potentially broken all trustees’ legal responsibilities and duties.
As demonstrated by the above scenarios, any of the parties to an inter vivos trust will have some form of legal responsibilities that they must fulfill, or it will be deemed a breach that carries legal consequences.
For instance, a dispute regarding the terms of the trust may lead to a civil lawsuit, resulting in a damages award to the non-violating party. Most conflicts that involve inter vivos trusts are generally settled in a civil court of law. Additionally, they are handled similarly to contract disputes and usually involve other fields of property law, such as wills or estates.
Getting Started
In some cases, it may be possible for you to prepare a revocable trust on your own. Make a document stating the trust is created to hold the property for the benefit of yourself or someone you specify. You can name yourself the trustee, but be sure to select an alternate trustee. Next, record the assets being placed in the trust.
Recall that the trust becomes the owner of the property you transfer. That’s why you must modify the name on the title to that of the trust. Rest assured, you keep the right to manage your property in a living trust, even if you’re not the trustee. You have the freedom to change the terms of the trust, and remove the trustee, or the property, at any time.
Do I Need to Hire a Lawyer for Help with Creating an Inter Vivos Trust?
Depending on the parties’ needs, an inter vivos trust can be an extremely useful estate planning instrument. If you believe that creating an inter vivos trust would best suit your needs, or if you have further questions about setting one up, you should consider contacting a local living trust lawyer for help.
An experienced living trust attorney can help you draft, edit, and examine the necessary legal documents that are needed to form a valid trust. In addition, a lawyer can also provide legal guidance if you are dealing with issues that involve a trust dispute or lawsuit.
