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How is a living trust different than a revocable trust?

Readers of this blog may have heard the term, living trust. Although it is an established option in estate planning, readers may have some questions about the control of assets and potential tax implications of this option. 

As background, keep in mind that a trust operates by placing legal title to certain assets in one person, the trustee, but designating another person to receive the benefits of those assets. In other words, the trustee and beneficiary of a trust are usually different individuals. 

The possible exception to the above rule is revocable trusts, where the creator of the trust may be both the trustee and beneficiary. However, revocable trusts do not offer the same tax benefits as other options, at least during the creator’s lifetime. In fact, since the assets are held in the creator’s name, a revocable trust generally does not require a separate tax identification number or the filing of a separate tax return.

A living trust can resemble the features of a revocable trust, while also planning for incapacity. For example, it can include a provision designating a successor trustee in the event that the creator becomes incapacitated. A successor trustee designation in a living will is similar to a power of attorney arrangement, except that it offers the greater flexibility of becoming effective only if the creator becomes incapacitated.

Both a revocable trust and a living trust do offer the benefit of avoiding probate upon the creator’s death. In such event, the successor trustee takes control of the trust and distributes assets to the trust’s beneficiaries, to the extent called for by the trust document.

For more information, check out our firm’s Miami estate planning page. 

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