Definition
An Inter Vivos Trust, also known as a living trust, is a trust established during the lifetime of the grantor and is used to manage and protect assets while the grantor is still alive. This type of trust allows individuals to place their assets into a trust and name a trustee to manage those assets for the benefit of themselves and others. The primary purpose of an inter vivos trust is to facilitate smooth asset transfer, avoid probate, and provide privacy regarding the grantor’s estate.
Examples
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Revocable Living Trust: John creates a revocable living trust where he transfers his home, investments, and savings. John retains the right to alter, amend, or revoke the trust. Upon John’s death, his daughter, Sarah, becomes the trustee and distributes the assets to the beneficiaries without going through probate.
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Irrevocable Living Trust: Mary sets up an irrevocable living trust by transferring her life insurance policy into the trust. Once the trust is established, Mary cannot change or revoke the trust. The trustee manages the policy, and upon Mary’s death, the policy benefits are paid to the trust beneficiaries directly.
Frequently Asked Questions
Q1: What is the difference between a revocable and an irrevocable trust?
A: A revocable trust allows the grantor to alter, amend, or revoke the trust during their lifetime, while an irrevocable trust cannot be easily altered or terminated once it is established.
Q2: How does an inter vivos trust avoid probate?
A: Assets placed in an inter vivos trust are owned by the trust, not the individual, thus avoiding the probate process, which is required for assets owned individually.
Q3: Can an inter vivos trust help in tax planning?
A: Yes, particularly irrevocable inter vivos trusts can be used in tax planning to remove assets from the grantor’s taxable estate.
- Grantor: The individual who creates the trust and transfers assets into it.
- Trustee: The entity or individual responsible for managing the trust according to its terms.
- Beneficiary: The person or entity that benefits from the trust.
- Probate: The legal process through which a deceased person’s will is validated and their assets are distributed.
- Estate Planning: The process of arranging for the disposal of an individual’s estate.
Online Resources
- Investopedia: Living Trust
- Nolo: Revocable Living Trusts
- IRS: Ten Facts About Inter Vivos Trusts
References
- The American Bar Association (ABA) publications on trusts and estates.
- IRS guidelines on trusts and their tax implications.
- Cornell Law School’s Legal Information Institute on trusts.
Suggested Books for Further Study
- “The Complete Book of Trusts” by Martin M. Shenkman
- “Living Trusts for Everyone” by Ronald Farrington Sharp
- “Make Your Own Living Trust” by Denis Clifford
Real Estate Basics: Inter Vivos Trust Fundamentals Quiz
### What is an inter vivos trust?
- [x] A trust established during the grantor's lifetime.
- [ ] A trust established after the grantor's death.
- [ ] A government-managed trust.
- [ ] A trust that only includes life insurance policies.
> **Explanation:** An inter vivos trust, also known as a living trust, is created and becomes effective during the grantor's lifetime.
### What is a primary benefit of an inter vivos trust?
- [x] Avoiding probate.
- [ ] Avoiding all taxes.
- [ ] Only for estate planning for charitable organizations.
- [ ] It requires no legal documentation.
> **Explanation:** One primary benefit of an inter vivos trust is avoiding probate, facilitating smoother and faster asset transfer after the grantor's death.
### Which type of trust allows the grantor to change the terms or terminate it?
- [x] Revocable trust.
- [ ] Irrevocable trust.
- [ ] Testamentary trust.
- [ ] Charitable trust.
> **Explanation:** A revocable trust allows the grantor to make changes or revoke the trust during their lifetime.
### Who manages the assets in an inter vivos trust?
- [ ] Grantor.
- [x] Trustee.
- [ ] Beneficiary.
- [ ] Probate court.
> **Explanation:** The trustee is responsible for managing the assets within an inter vivos trust.
### Can an irrevocable inter vivos trust be altered once it’s established?
- [ ] Yes, with the court's permission.
- [x] No, it cannot be easily altered or terminated.
- [ ] Yes, but only within the first year.
- [ ] Yes, provided all beneficiaries agree.
> **Explanation:** Once an irrevocable inter vivos trust is established, it generally cannot be altered or terminated.
### What happens to the assets in a living trust upon the grantor's death?
- [x] They are transferred to the beneficiaries as per the trust terms.
- [ ] They are subject to probate.
- [ ] They are donated to a charity.
- [ ] They become government property.
> **Explanation:** Upon the grantor's death, the assets in a living trust are transferred to the beneficiaries according to the terms of the trust, bypassing probate.
### Who can be the beneficiaries of an inter vivos trust?
- [ ] Only family members.
- [ ] Only charitable organizations.
- [x] Any individual or entity specified by the grantor.
- [ ] Only individuals more than 18 years old.
> **Explanation:** Beneficiaries can be any individuals or entities chosen by the grantor, not limited to family members or charitable organizations.
### What is the purpose of an inter vivos trust in estate planning?
- [x] To manage and distribute the grantor's assets.
- [ ] To conceal assets from the government.
- [ ] To eliminate all tax liabilities.
- [ ] To carry out informal gifting.
> **Explanation:** An inter vivos trust is used in estate planning to manage and distribute the grantor's assets both before and after their death.
### Do assets in an inter vivos trust have to go through probate?
- [ ] Yes.
- [x] No.
- [ ] Only if valued above a certain amount.
- [ ] Only in certain states.
> **Explanation:** Assets in an inter vivos trust typically do not go through probate as legal ownership is transferred to the trust itself.
### What is a significant tax advantage of an irrevocable inter vivos trust?
- [x] It can lower the taxable estate of the grantor.
- [ ] It can eliminate income tax.
- [ ] It can create a tax-free income.
- [ ] It can defer taxes indefinitely.
> **Explanation:** An irrevocable inter vivos trust can remove assets from the grantor's taxable estate, potentially reducing estate taxes.
