Inter Vivos Trust

What is an inter vivos trust?

An inter vivos trust is a type of trust created by an individual or a married couple to hold and manage assets during their lifetime. Also known as a living trust, this trust is often used by individuals or married couples to avoid probate, maintain privacy, and ensure efficient distribution of assets during their lifetime and after death. 

An inter vivos trust set up during an individual’s lifetime can ensure that the assets remaining in the trust after the settlor’s death are distributed to beneficiaries according to the settlor’s wishes. To do this, the settlor can include a wide range of conditions, such as distributions based on a schedule or certain criteria that must be met before the assets can be accessed.

An inter vivos trust can be set up as either a revocable or an irrevocable trust. If set up as a revocable trust, an inter vivos trust can also serve the purpose of providing for the settlor during their lifetime such as through regular income payments.

Inter vivos trust vs testamentary trust

While there are many different types of trusts that can be used for effective estate planning, there’s often a large difference in when and how each trust is established. Inter vivos literally translates as “between the living.” This is what differentiates this type of trust from other trusts such as a testamentary trust

An inter vivos trust is created, funded, and becomes active during the settlor’s lifetime. A testamentary trust is established through the grantor’s will and becomes effective only after the grantor’s death.

Should you use an irrevocable or a revocable inter vivos trust?

An inter vivos trust can be either revocable or irrevocable. If you want to be able to make changes to the trust once it’s established, it’s beneficial to set it up as a revocable trust. This gives you the option to remove assets, add new beneficiaries or make other amendments as needed during your lifetime. You can also name yourself as trustee of this revocable inter vivos trust so you can manage and distribute the assets according to your wishes while you’re alive.

An irrevocable inter vivos trust, on the other hand, cannot be easily changed or revoked by the settlor once established. Assets placed in an irrevocable trust, however, enjoy the benefit of being shielded from estate taxes and creditors, making it a valuable tool for those looking to protect their assets, provide for charitable causes, or ensure a smooth transition of wealth to future generations. 

Inter vivos trust example

John and Sarah are a retired couple who need income from their investment assets to fund their basic financial needs. They also want to maximize the legacy they leave for their children Mark and Lisa. They meet with their estate planning attorney and establish an inter vivos revocable trust. They name themselves as trustees, stipulating the right to receive monthly distributions for their living expenses along with the ability to use trust assets for medical expenses and other specified needs.

The trust document specifies that upon the death of the last person in the couple, the assets will be distributed equally to their children, Mark and Lisa, over a period of ten years unless they have a health or medical situation that would require them to access the assets sooner. John and Sarah have named their family office as the successor trustee to ensure the assets are distributed in line with their wishes after they’re gone. This inter vivos trust arrangement allows them to live off their income as long as both are alive while ensuring their children are taken care of afterwards.

What is an inter vivos gift?

As part of their estate plan, individuals may end up making an inter vivos gift to either support other family members, reduce the size of their taxable estate, or contribute to a charitable cause. Unlike gifts that are made through a will or distributed after the donor’s death (often called a bequest), an inter vivos gift is made during the settlor’s lifetime. 

Gifting is among one of many estate planning strategies that individuals use to pass on their assets and leave their legacy in an efficient and fulfilling way. Depending on the value and nature of the gift, there may be tax implications, such as gift tax or generation skipping transfer (GST) tax, for the donor or recipient of the inter vivos gift. Learn more about using gifting during your lifetime as an estate planning strategy in our guide to gifting.

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