A living trust is a legal entity created to hold the assets of a trustor and be managed by a trustee. When the living trust is created, the trustor transfers assets into the trust while he or she is living. Additionally, the trustor designates beneficiaries to which the trust will be transferred to upon the trustor’s death. The trust is overseen by a trustee who manages the assets and oversees the eventual transfer to the beneficiaries.
An important feature of the living trust is that the trustor can modify or terminate the trust at his or her choosing, which makes it practically synonymous with that of a revocable trust. Additionally, the trustor and the revocable trust tend to share the same tax ID number.
An irrevocable trust, on the other hand, is one that cannot be amended or terminated and uses a separate tax ID number.
Living trusts can be revocable or irrevocable. Here is the difference between the two:
Revocable trusts allow for the grantor to appoint him or herself as trustee, which in turn allows the trust’s assets to remain part of the grantor’s estate. Revocable trusts also allow the grantor, in their role as trustee, to amend or undo the trust at any time. This includes adding or removing beneficiaries at any time.
With irrevocable trusts, on the other hand, the grantor does not act as trustee. As a result, the grantor must give up some of their control over the assets of the living trust. A trustee is designated to oversee the trust and act as legal owner. This move allows the grantor to reduce their taxable estate. However, irrevocable trusts do not come with the same flexibility as revocable trusts, making it difficult to change beneficiaries.
Similar to the living trust is a land trust, which is a special type of living trust. However, a land trust is designed to specifically own real estate. Often times the main purpose of a land trust is to provide the owner with anonymity when it comes to public record. Just as with a living trust, a land trust is a revocable trust, which means that the assets placed in the trust can be removed at any time.
In the case of land trusts, a third party is used (commonly a bank) to serve as trustee. In this way it differs slightly from a living trust in which the trustee manages the assets for the beneficiaries. Here, the trustee acts in lockstep with the wishes and orders of the beneficiary, who is the owner of the real estate, largely doing what they are told to do by the owner.
Understanding the distinctions between a land trust and a living trust can be useful in your financial planning, as well as in your end of life plans. Taking the time to ensure that your family and loved ones will receive the appropriate assets and property now will save them the hassle, expenses, and complexity of probate.
You have the option to create a living trust during your lifetime. When you create a living trust, you designate a trustee to oversee and manage the trust. This trustee is the legal owner of the assets placed in the trust and has the responsibility to manage the living trust in the best interests of the beneficiaries. When the trustor passes away, the assets held in the trust flow to the designated beneficiaries while bypassing the court system. Note that this is different from that of a will, which does need to go through the courts before assets can be distributed.
You also have the option to create a land trust, which is a type of living trust. As noted earlier, land trusts must specifically hold real estate or real estate related assets. In the case of land trust, the owner of the real estate is the beneficiary of the trust. For this reason, the owner is able to control how the property is managed and also retain all of the property rights, such as renting and selling. Land trusts are typically revocable trusts, which allow for amendment or termination at the direction of the owner.
There are a number of benefits that you can achieve through creation of a land trust. For example, a land trust can provide protection of your assets from creditors and other legal liabilities. In addition to asset protection, the benefit most commonly associated with a land trust is the ability to hold real estate assets anonymously. So, if you would like to keep your name and information private when owning property, utilizing a land trust can help you achieve this.
This feature is possible because the property held in the trust goes by the name of the trust when listed in public records. This can be a very beneficial aspect when conducting property negotiations or handling potential lawsuits.
Finally, another benefit that a land trust provides is the way in which it can act as a living will. The property and assets contained in the trust are considered to be personal property, so the trust avoids probate court. This way you will not have to go through the courts to rent, sell, or manage the property held in the land trust.