It’s been estimated that a majority of Americans don’t currently have any sort of estate plan in place for after their death — be it a will or a living trust. Perhaps they assume beneficiaries can simply sort it out among themselves. Perhaps it’s too unpleasant a thought. Or perhaps they find the subject too confusing, too technical, or simply too uncertain. After all, no one knows what the future holds.

Perhaps you’re one of them. And while living trusts take time and forethought to construct, they’re nowhere near as complicated as they may seem. They can bring peace of mind — not just to your beneficiaries, but to you. It’s as much about your security as it is your assets. If you’re a homeowner who doesn’t know where to start, here’s what you need to know about living trusts.

What Is a Living Trust?

A will and a living trust can seem like interchangeable terms, but they’re not. While both can name beneficiaries for your property, a living trust offers certain legal protections from court challenges and the process of probate. A trust requires you to transfer both physical property and cash assets to a legally named custodian — whereas property in a will can be contested in court, frequently with bitter and acrimonious results.

The definition of a living trust is a trust created while you’re alive that lets you transfer the title of your property to a named beneficiary — who essentially owns that property. Living trusts are frequently used to allocate property in a single document, ensuring the legal and incontestable distribution of your assets after death. There are both benefits and disadvantages to a living trust, so let’s look at the types first.

What Types of Living Trusts Are There?

There are two main categories to keep in mind: revocable and irrevocable. Other types can, for the most part, be classified under one of these two — although the more common ones tend to be irrevocable.

While “revocable trust” is sometimes used synonymously with “living trust,” it’s better to think of it as a type of living trust, not the sole definition. So what’s the difference between revocable and irrevocable trusts?

Revocable Trusts

A revocable trust is a living trust whose terms can be altered at any time, for any reason, by the trustor. A trustor can remove and designate beneficiaries, modify the assets managed under the trust, and even cancel or revise the trust entirely if deemed necessary. This presents a few specific benefits over an irrevocable trust.

Once placed into a living trust, your assets are no longer your personal property — they belong to your trust. Those assets don’t have to go through a lengthy probate process (which in many states can take well over three years) to be assigned out. And while your personal assets are still taxable and can only be transferred to your named beneficiaries after your death, they can continue to generate claimable income depending on the terms of your trust.

The other benefit is control. One disadvantage of a revocable trust is that some modifications may require the consent of named beneficiaries (or in some cases a trustee), not the trustor alone.

This can lead to potential legal entanglements, and it requires good faith on your end. Not every beneficiary will be level-headed or competent enough to manage your assets accurately. And while placing a trust in the hands of a private wealth management company may seem like assurance, keep in mind that wealth managers charge percentage fees based on your assets under management — sometimes up to 2 percent.

With revocable trusts, terms are flexible. Trustees, beneficiaries, and your attorneys can have as much or as little input as you specify. And should an emergency occur and you need to cash in on a particular asset, the contents of a living trust can be modified at your explicit request.

But there are other disadvantages. Both federal and state governments consider revocable trusts taxable as a result of ownership by the grantor, and that tax liability can be substantial. However, a trust becomes irrevocable at the time of death.

The most common form of a revocable trust is known as a Totten trust, or POD (“Payable on Death”) trust. These are assets deposited into a bank account or CD that cannot be accessed by a trustee until the trustor’s death. Totten trusts are considered free from probate and legal proceedings. Keep in mind, however, that a Totten trust is only used with bank accounts and cannot be applied to physical property.

Irrevocable Living Trusts

An irrevocable trust (frequently referred to as an “asset protection trust”) is best defined as a living trust whose terms cannot be modified or amended without the consent of its named beneficiaries. Having effectively transferred all ownership of assets into the trust, the grantor’s right of ownership is subject to the specifications of the beneficiaries. This can free assets from unnecessary income tax liability — a liability that revocable trusts do not protect your estate from.

There’s another advantage to an irrevocable trust: protection from creditors. If drafted properly, future creditors cannot seize assets held in an asset protection trust. And while these are frequently included in amicable divorce proceedings, they’re also common in inheritance estate planning. The benefits of creditor protection vary by state law — Utah, for example, is one of the states allowing significant asset security through irrevocable trusts.

In addition to asset protection, there are several categories of irrevocable trusts to consider:

• Charitable Trusts: trusts in which assets directly benefit a charitable or philanthropic cause. It’s rare for a grantor to allocate their entire estate to a charitable trust, though it happens; the chief benefit is helping reduce estate taxes by transferring property to a charitable giving foundation.
• Constructive Trusts: an equitable-remedy trust established only by court order. It mandates that assets be transferred to a beneficiary in cases of unjust or illegal obtainment by a trustor. Rare, but not unheard of in bankruptcy cases, especially with high-value property.
• Special Needs Trust: designed for a beneficiary on government assistance (due to physical, mental, or emotional disability) to supplement their regular benefits. The main advantage is that, by law, the trust is exempt from being counted toward eligibility requirements for state and federal subsidization.
• Spendthrift Trust: a spendthrift clause is a common provision that restricts the beneficiary’s right to sell, pledge, or exchange interests in a trust. Frequently administered by wealth management firms, especially where a beneficiary has a history of unstable financial behavior. Used as insurance against creditors and as assurance that funds stay secure.
• Tax By-Pass Trust: established to pay income and principal from assets to a trustor’s spouse, particularly if the total trust amount exceeds tax exemption limits. More common in high-value estates where tax exemptions and liabilities can be argued during legal proceedings.

How Do Living Trusts Work in Utah?

As noted, one significant advantage of a living trust over a will is avoiding probate court, which can be a costly, lengthy, and frequently messy affair. While Utah has adopted the Uniform Probate Code (initially intended to streamline the process), beneficiaries, grantors, and attorneys tend to agree that estate administration can still be highly contested — full of grey areas and liabilities.

By naming beneficiaries in a trust (revocable or irrevocable), you’re the one who establishes legal ownership and distribution of assets — not a court. And if you’re drafting an irrevocable trust, you’re potentially saving yourself and your beneficiaries substantial tax worry, as well as buying protection from creditors.

But it comes with a trade-off. Irrevocable trusts are virtually inflexible while you’re alive. Anyone can be named a beneficiary, including yourself (common for tax benefits). While irrevocable trusts can sometimes be contested in court in particular cases, for the most part they’re considered legally binding until you’ve passed away. It can be incredibly tumultuous for a family to contest a living trust after death — and while revocable trusts can save your family years of aggravation, they won’t necessarily provide beneficiaries the tax shelter that irrevocable trusts can.

How Much Does a Living Trust Cost?

Rates vary given the size of an estate and any extenuating circumstances, but the cost of drafting a living trust is often estimated in the range of roughly $1,000–$1,500 for individuals and $2,000–$2,500 for married couples. (Costs have risen over time, so treat these as a starting point and get a current quote.)

Who Owns the Property in a Trust?

While the property in a living trust is owned by the named beneficiary (subject to terms, and in the case of a revocable trust, modifiable at your discretion), it’s considered non-transferrable until the death of the trustor unless otherwise stated.

Questions About Selling Property Held in a Living Trust

• Can you sell your home in a living trust? Legally, yes — so long as it’s in a revocable trust. But no matter how flexible a revocable trust is, you’re still subject to property tax and potential capital gains tax, plus attorney and retitling fees. With a revocable trust, you’re legally required to pay taxes on a property even if it’s deeded to a beneficiary.
• What is a trustor? A trustor is any entity (individual or institution) gifting named beneficiaries with property according to the terms of a trust. While a trustee may oversee your title, you’re still legally required to make mortgage payments while the home is in trust. Upon payoff, the deed is retitled under your name.
• Who is the grantor of a trust? “Grantor” and “trustor” are virtually interchangeable — both refer to the holder of property being gifted to a named beneficiary. Grantors typically designate a trustee to handle management, distribution, and administration.
• Who can be the trustee? A living trust legally requires a trustee to oversee management and administration. In most revocable trusts, you act as the de facto trustee while alive, and can remove any trustee who fails to comply with your terms. In an irrevocable trust, the trustee designation is legally binding and can include an attorney, a financial institution, a relative, or a named beneficiary. Most trusts name at least two alternate successor trustees. Upon your death or mental incapacity, the trust becomes irrevocable. Trustees aren’t authorized to make health care decisions, nor are they responsible for property not held in trust.

How to Create a Living Trust

Because creating a living trust requires extensive knowledge of federal and state administration laws, many grantors seek legal counsel to draft one. And while attorneys frequently serve a dual purpose as trustees, they’re not always affordable. Preparation of a trust can reach well into the thousands, not counting retainer fees (often based on a percentage of the trust).

Living Trust Forms

At a high level, creating a living trust means itemizing your property, designating beneficiaries and trustees, creating a detailed trust document (including any title policies to property), and having it notarized. Resources are available to draft trust forms from online providers such as LegalZoom and Nolo, as well as smaller firms specializing in legal documents.

But you’ll still need foreknowledge of applicable tax laws to ensure efficient, legal distribution — and a trustee with that same level of knowledge you can depend on for effective administration after your death.

A List of Utah Attorneys Providing Living Trust Services

• Durham Jones & Pinegar — 111 South Main St #2400, Salt Lake City, UT — (801) 415-3000
• Dennis M. Astill, P.C. — 7730 South Union Park Ave #130, Sandy, UT — (801) 438-8698
• Carr & Woodall — 1309 W. South Jordan Pkwy #200, South Jordan, UT — (801) 988-9400
• Red Law Estate Planning — 2650 Washington Blvd #201, Ogden, UT — (801) 477-0733
• Mountain View Law Group — 1104 Country Hills Dr #750, Ogden, UT — (801) 393-5555
• Stephen W. Howard, P.C. — 560 South 300 East, Salt Lake City, UT — (801) 449-1409
• Helgesen, Houtz & Jones — 1573 South 1475 East #200, Ogden, UT — (801) 544-5306
• Pearson & Butler — 1802 South Jordan Pkwy #200, South Jordan, UT — (800) 265-2314
• Melling Law, P.C. — 66 W Harding Ave Ste 5-C, Cedar City, UT — (435) 572-0807

Wrapping It Up

One alternative is to sell your home before establishing a revocable trust and repurchase it later (perhaps when the value may be lower), modifying your trust for inclusion after transferring the sale funds. This house buying company even offers a sell now, move later program. It offers several options ideal for a revocable trust, including renting your property post-sale, flexible buy-back options, and using the proceeds from your sale as a down payment on new property.

Estate planning is never the most exciting process — especially when you’re in the autumn of your years. But it’s a necessary one. There are multiple options available, each with distinct advantages, and many with distinct disadvantages. What you owe your children is the former.

If you’d like personal help thinking through how estate planning fits into your broader wealth and legacy strategy, book a free 30-minute call with Trent here.