Legal Insurance

What Is a Living Trust and How Does It Work?

4 min read
Oct 24, 2022

A living trust is a fund and legal document that secures your assets for a beneficiary until a certain time, such as when you pass away, when the beneficiary reaches a certain age, or another circumstance specific to your needs.

There are a few key terms to know ahead of diving into the specifics:

Grantor: the person establishing the living trust (that’s you), also sometimes called a trustor

Trustee: the person assigned to manage the trust once it’s created and who distributes the assets later on

Beneficiary: the person receiving the assets in the trust at the predetermined time

Most trusts are living trusts, or trusts that are created while the grantor is still alive. The assets can be distributed after your death or during your lifetime. Living trusts allow you to bypass probate court processes associated with wills or intestate estates, which can save you time, stress, and money spent on legal fees.

How does a living trust work?

Living trusts are an essential part of a robust estate plan. They allow you to safeguard your assets so they can be distributed when and how you’d like. When you create a living trust, you have to determine whether you’d like to remain in control of the account or if you’d like to have another party, like an estate planning lawyer, manage it for you as your trustee.

You can then assign a single beneficiary or multiple beneficiaries, who will receive your assets at a preplanned time. Finally, you can open a trust account and transfer money or property into it. At the time you’ve chosen, whether it’s your passing or sometime before, the trustee will distribute these assets to your beneficiaries.

What should you put in a living trust?

While living trusts can hold any number of assets, some are more appropriate for funding your trust than others:

  • Cash and bank accounts
  • Investment accounts that are not part of your retirement plan
  • Stocks and bond certificates
  • Personal property, like jewelry, electronics, artwork, collectibles, and others
  • Vehicles, pets, livestock, and farm equipment
  • Businesses or organizations
  • Land or real estate

Some things are not allowed to be transferred from person to person without going through the formal probate process. Check with your state’s guidelines to make sure you’re funding your trust within regulations.

What should you not put in a living trust?

Though there are many items you can include in your living trust account, some are not allowed or you may wish to avoid:

  • Retirement accounts, like IRAs, 401(k)s, 403(b)s, and annuities
  • Money from HSAs, MSAs, or FSAs

How much does a living trust cost?

According to AARP, it can cost upwards of $1,500 to hire an estate planning lawyer to help create documents such as a living trust, with that cost varying by lawyer and state. If you have access to a network of attorneys through a legal plan offered by your employer, then you can maybe be able avoid some or all of these fees.

Types of living trusts

Living trusts typically take one of two forms: revocable living trusts and irrevocable living trusts.

Revocable living trust

A revocable living trust allows the grantor to designate themself as the trustee, giving them full control of the assets being kept within their trust. What makes revocable living trusts appealing is the flexibility they offer. The grantor can cancel or amend this type of trust.

Irrevocable living trust

With an irrevocable living trust, the grantor names an outside trustee to control the account, as opposed to naming themselves. This type of trust is different from a revocable trust in that once the account is handed over to the trustee, the grantor is no longer the legal owner of the trust or its assets. Once created, the grantor cannot change or cancel irrevocable living trusts.

Living trust vs. will

Living trusts and wills are both options when planning your estate. Each helps you plan for the storing and managing of your tangible assets. However, the way assets are held and distributed differs between the two.

A living trust keeps those assets in an account and can be directly dispersed to your beneficiaries by your trustee. Most wills have to go through probate, or the formal process of distributing assets, which often requires you to go through probate court.

Creating a living trust

You can create a trust in one of two ways: You can do it yourself, or you can hire an estate planning attorney to facilitate the process for you.

Because hiring a lawyer is such an important decision, you’ll want to make sure you utilize someone you can trust. Look to your immediate circle for recommendations or, if you have access to legal insurance plans through your job, find a lawyer within that network.

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This article is intended to provide general information about insurance. It does not describe any Metropolitan Life Insurance company product or feature.

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