When planning your estate, you’re bound to wonder what tools are available to make your estate as safe and sound as possible. A part of this process is getting to know all the different types of Trusts that are out there, and which kind would benefit you most. Enter: the Inter Vivos Trust. Keep reading to find out all about this powerhouse Trust, and find out if it’s the right choice for you.
What is an Inter Vivos Trust?
An Inter Vivos Trust is a fiduciary agreement that can be established during your lifetime. Also known as a Living Trust, an Inter Vivos is an important type of estate planning document that ensures the distribution of assets during and after your lifetime.
This lifetime piece is a key distinction because there are Trusts that only go into effect upon a person’s passing. An example of this is a Testamentary Trust.
“Inter Vivos” is Latin for the meaning “between the living,” and is a legal term that describes a transfer made while you’re alive. This explains how the synonym Living Trust came about. Once you set up your Inter Vivos Trust, you would then transfer the assets of your estate into the ownership of the Trust. This type of Trust is unique in that it allows you to access and benefit from the assets during your lifetime. Upon your passing, the assets would then be distributed to your beneficiaries by the appointed trustee.
Benefits of an Inter Vivos Trust
Inter Vivos Trusts are a popular choice because it provides many advantages to the grantors, their estate, and their beneficiaries. Here are some advantages that you might enjoy when utilizing an Inter Vivos:
Allows you to control assets during your lifetime
Avoid probate process
Keeps financial matters private
Protects assets from creditors
Very flexible relative to other trusts
Helps to reduce estate taxes
An Inter Vivos Trust allows you to access and control its assets while you’re alive, which in itself is appealing. It’s a practical option for individuals who want to set up their Trust and Will, but still very much need to use and access the assets that they are placing into the Trust.
Placing assets from an estate and into a Trust also helps you avoid probate. The probate is lengthy, costly, and can eat into the legacy that you planned to leave for your family. The courts also make records public, exposing your family’s private financial information. By avoiding probate, you always get to retain privacy away from prying eyes.
Although you may be subject to creditors while you’re living, once you pass away, your living trust becomes an irrevocable trust. Because the assets are owned by a Trust, and not by an individual, a future creditor cannot come after you. You do have the option to set up an Irrevocable Trust during your lifetime, but it’s a different type of Trust that won’t allow any modifications.
Inter Vivos Trusts also grant the owner a lot of flexibility, relative to other Trust types. Some Trusts are legally restrictive, leaving you with little wiggle room. Inter Vivos provides a lot of fluidity, such as allowing you to benefit from the assets, and then leaving the remainder for your beneficiaries upon your passing. Most Trusts have set timelines and limited uses.
Last but not least, a Living Trust can help reduce your exposure to estate taxes. In case you live in one of the states that levy an estate tax, or your estate is worth more than the current exemption, you may be subject to estate taxes. Because an Inter Vivos Trust allows you to use assets during your lifetime, you have the opportunity to strategically spend down or gift some of your assets so that you do not exceed the exemption amount.
What is the Opposite of an Inter Vivos Trust?
The Inter Vivos Trust can go into effect during your lifetime. Continuing with this logic, the opposite of an Inter Vivos Trust is something that goes into effect after your lifetime. Discussed earlier, a Testamentary Trust fits this description beautifully.
A Testamentary Trust is written in as a part of your last Will and testament and only goes into effect upon your passing. This type of Trust is subject to probate court, which is a major consideration. However, some individuals choose this route because they prefer judicial oversight. Let’s say that you have young children, or a beneficiary who has a disability or mental illness. After probate, the courts would oversee that the executor carries out their duties, such as creating the Trust and ensuring that assets are distributed per your specific instructions.
Note that an Inter Vivos and Testamentary Trust are just two examples of many different types of trusts. Our guide Types of Trusts - Which Option is Right for You provides a great overview of different options so that you can start thinking about which choice is best for your unique circumstances.
Inter Vivos Trust Example
One example to help you imagine how an Inter Vivos Trust can be used is a college education fund. Let’s say you have two young children, and you and your spouse became motivated to establish an estate plan. You set up two Trusts and name your children as the beneficiaries, one Trust per child. For now, you are able to gift $5,000 into each Trust. You want to make sure that even if something unexpected were to happen, each child would be left with something to help them get started in college. Thanks to the flexible terms of an Inter Vivos Trust, you’re then able to continue making additional gifts to each Trust when you can. These Trusts are Inter Vivos because you set them up during your lifetime.
Should You Set Up an Inter Vivos Trust?
Whether or not you should set up an Inter Vivos Trust is an entirely personal decision. If you’d like to establish a Trust now, and not one that would be triggered by your death, then a Living Trust is a great option. Some of the advantages include the ability to side-step probate, as well as control and access assets during your lifetime. This flexibility makes sense for a lot of families and is one of the many reasons why Inter Vivos Trusts are a popular estate planning tool.
Choosing the right Trust can be tricky to navigate, and we’re here to help. Be sure to check out the guides to learn about other types of trusts, some of which we provided links to in this article. It might feel overwhelming at first, but educating yourself is a great way to start identifying what you do and don’t want. Once you have an idea, you can consult a Trust & Will professional who can point you in the right direction.