Inter-Vivos Trust

Definition

An Inter-Vivos Trust, also known as a living trust, is a legal entity created during a person’s lifetime where an appointed trustee is given authority to manage the trustor’s assets for the benefit of the trust’s beneficiaries. This trust is designed to ease the transfer of the trustor’s assets while bypassing the often complex and expensive legal process of probate. The trustor can change or dissolve the trust during their lifetime.

Phonetic

The phonetics of the keyword “Inter-Vivos Trust” is: /ˈɪntər ˈviːvoʊs trʌst/.

Key Takeaways

1. Asset Control: An Inter-Vivos Trust, also known as a living trust, is a legal arrangement that allows the truster, also known as the grantor, to control their assets while they are alive. The grantor has the benefit of being able to manage and use the assets as needed, including the option to revoke the trust at any time.
2. Avoidance of probate: One major advantage of the Inter-Vivos Trust is that it helps to avoid the lengthy and often costly probate process. Probate is the legal process that takes place after someone dies to account and distribute their assets. By holding assets in a trust, they can be transferred directly to the named beneficiaries upon the grantor’s death, bypassing probate entirely.
3. Privacy: Another significant advantage of an Inter-Vivos Trust is the privacy it offers. Because the contents and terms of the trust don’t have to be made public, the details of the grantor’s estate remain confidential. This is often a favorable comparison to a last will and testament, which becomes public record when it is submitted to probate court.

Importance

An Inter-Vivos Trust is important in business and finance due to its capacity to manage and protect assets during an individual’s lifetime and determine how those assets will be distributed after death. This type of trust, also known as a living trust, offers greater control over asset distribution, allowing for the bypassing of probate – a typically time-consuming and public process of settling an estate. Moreover, it is flexible and can be altered or cancelled as per the trust maker’s wishes, if it is a revocable trust. From a business perspective, the Inter-Vivos Trust provides continuity as the trust’s operations can continue unhindered even in cases of incapacity or death of the trust maker, thereby providing smoother transitions and ensuring the longevity of businesses.

Explanation

An inter-vivos trust, commonly known as a living trust, is a crucial legal instrument used in estate planning aimed at managing an individual’s property and assets during his/her lifetime. Effectively, its main purpose is to circumvent the often complicated and costly probate process that follows an individual’s death. The person who establishes the trust – dubbed the trustor, grantor, or settlor – transfers ownership of his/her assets into the trust, which is then managed by a trustee for the benefit of the named beneficiaries.Two principal types of inter-vivos trusts are revocable and irrevocable trusts. A revocable trust allows the trustor to maintain control and flexibility over the assets, with rights to amend, revoke or modify the trust’s terms at any time. On the other hand, once an irrevocable trust is created, the trustor renounces control over the assets and cannot alter the trust without consent from the beneficiaries. Irrevocable trusts are typically used to reduce estate taxes and protect assets from creditors. Regardless of the type, inter-vivos trusts bestow benefits such as privacy in estate settlement, continuity in asset management, potential tax savings, and flexibility in terms of how assets should be disbursed.

Examples

1. Estate Planning: A common example of an inter-vivos trust in business is through estate planning. Many individuals establish an inter-vivos (living) trust to manage and distribute their assets smoothly and privately. They transfer the title of their property into the trust during their lifetime and dictate how it should be distributed upon their death. For instance, a wealthy parent might set up an inter-vivos trust to pass on their assets to their children without going through a probate process.2. Business Succession Planning: An established business owner may use an inter-vivos trust as part of their succession planning strategy. The owner can place the business into the trust, allowing for a smoother transition of control upon the owner’s death. For instance, a family-owned business may be transferred to the next generation through a trust agreement, ensuring the business’s continuous operation even after the death of the original owner.3. Asset Protection: A business professional with high liability risks, such as a doctor or lawyer, may set up an inter-vivos trust to protect personal assets from potential lawsuit judgment. The person will transfer risky or significant assets into the trust where it would be out of reach from creditors. They might also use the trust to protect the assets from the possibility of a financial loss or bankruptcy.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Trustee: An individual or organization who manages the assets placed into the trust on behalf of the beneficiaries.
• Beneficiary: A person who benefits from the assets held in the trust. This can be a family member, friend, charity, etc.
• Revocable Trust: A type of Inter-Vivos Trust that can be altered, changed, or terminated by the trustmaker at any time.
• Irrevocable Trust: A type of Inter-Vivos Trust that cannot be altered, changed, or terminated without the permission of the beneficiary. Once assets are placed into an irrevocable trust, they cannot be taken out again.
• Asset Protection: The concept of and strategies for guarding one’s wealth, which is a primary advantage of establishing an Inter-Vivos Trust.

Sources for More Information

• Investopedia
• The Balance
• LegalZoom
• Nolo