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Simple English definitions for legal terms
living trust
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A quick definition of living trust:
A living trust is a type of trust where the person who creates it can change it or end it whenever they want. This is different from other types of trusts that cannot be changed once they are created. Living trusts can be helpful because they allow the person to add or remove things from the trust over time. However, living trusts may have more taxes and debts than other types of trusts. People might create living trusts to make sure their things are taken care of if they cannot do it themselves. Some people might use other types of trusts to help them make money.
A more thorough explanation:
A living trust, also known as a revocable trust, is a type of trust where the person who creates the trust (the settlor) can change or end the trust at any time. This is different from an irrevocable trust, where the settlor cannot make changes once the trust is created.
Living trusts can be used for many reasons. They offer flexibility, allowing the settlor to add or remove assets from the trust as needed. They can also be used to ensure that the settlor's assets are managed properly if they become unable to do so themselves.
However, living trusts may come with higher tax and creditor liability than irrevocable trusts. It's important to consider these factors before creating a living trust.
For example, John creates a living trust and puts his house and savings into the trust. He can change the trust at any time, and he can also use the assets in the trust during his lifetime. If John becomes unable to manage his assets, the trustee of the trust can step in and manage them for him.
Another example is Sarah, who creates a living trust to hold her investments. She can add or remove investments from the trust as needed, and she can also change the terms of the trust if her circumstances change.
These examples illustrate how living trusts offer flexibility and control to the settlor, but also come with potential drawbacks such as tax and creditor liability.