The Benefits and Disadvantages of Living Trusts

Abstract

An inter vivos trust is a trust created during the settlor’s lifetime which becomes effective while the settlor is still alive as contrasted with a testamentary trust which takes effect upon the settlor’s death. Because an inter vivos trust becomes effective during the lifetime of the settlor, it is commonly referred to as a “living trust.” Living trusts are often pitched as the panacea that reduces expenses and avoids lawyers, taxes, and probate in advertisements by attorneys and other promoters of living trusts. Despite the tremendous potential benefits of living trusts, however, they are not for everyone. Living trusts must be used wisely after thoroughly evaluating the potential benefits and disadvantages. This article provides a discussion of the pros and cons of inter vivos trusts which a client must consider before deciding to create an inter vivos trust.

Keywords: trusts, living trusts, inter vivos trusts, Texas, estate planning

JEL Classification: K11