What is an Inter Vivos Trust?

Inter Vivos Trust

An inter vivos trust is a type of trust that is established during a settlor’s lifetime. The settlor is the person who wants to set up the trust and will be transferring the assets to the trust. The trustee holds the legal title of the property transferred by the settlor to them. The beneficiary is the individual who benefits or will receive the benefit of the transferred assets and who is in the care of the trustee. An inter vivos trust can have the same individual acting as a settlor and trustee.

How to set up an Inter Vivos Trust

To set up a trust including an inter vivos trust, three things must be present.

  • There must be a clear intention to create a trust
  • The beneficiary or beneficiaries of the trustee must be identified
  • The trustee must receive the asset from the settlor (it’s not sufficient to simply say you will transfer them, the trustee must have legal ownership of the assets)

What are the benefits of an Inter Vivos Trust?

There are many benefits to creating an inter vivos trust but since each benefit might differ for each person depending on your situation, I will highlight two that will all benefit from regardless of the situation.

  • Creditor Asset Protection
    • Generally, assets placed within an irrevocable trust (see below for definition of irrevocable trust) are protected from creditors as it’s for an assigned beneficiary.
  • Assets are not included in the estate and reduce probate fee
    • Assets in an inter vivos trust will not flow back to the settlor’s estate upon death as they are for the benefit of the named beneficiary.

What is a revocable inter vivos trust?

When a trust is set up it can be revocable or irrevocable. If a trust is revocable it can be canceled or undone at any time by the settlor. An irrevocable trust cannot be canceled or revoked by the settlor, as the settlor has no legal right to take back the trustee’s assets.

Usually, if the trust agreement isn’t made clear to be a revocable trust, it’s assumed to be irrevocable.

How is an Inter Vivos Trust Different than a Testamentary Trust

A testamentary trust is created upon a person’s death and is usually created as a result of their will. As such, the trustee is appointed directly in the will of the individual or the individual’s estates will appoint the trustee.  An inter vivos trust is created during a person’s lifetime, therefore, the settlor creates the trust during their lifetime and appoints the trustee directly.

What is the responsibility of a Trustee of an Inter Vivos Trust?

Since trust is essentially a person giving assets to another to manage for the benefit of someone else they wish to have those benefits, there is a high degree of trust placed on the trustee to avoid the erosion of that trust. As such, there are mainly four things a trustee is expected to do or avoid.

  • Avoid any conflict of interest by not using trust property for their own benefit or doing anything that might create a conflict of interest concern
  • The decisions made by the trustee should be what another reasonable person would do with respect to the property in their care
  • The trustee cannot put its responsibility or authority in the hands of someone else. They can’t assign their trustee duties to another person. However, a trustee can say hire a realtor to sell a property for them but not ask the realtor to perform their trustee duties.
  • Be impartial when it comes to the trust assets that are for the benefit of the beneficiary. The trustee should also make decisions that will best serve the best long-term interest of the beneficiary.

Is it worth it to set up an Inter Vivos Trust?

There are many reasons to set up an inter vivos trust but there are some drawbacks. They can be used to set up a means to provide future income streams to family members that perhaps without giving them direct ownership of the asset. However, setting up this type of trust can be complicated and expensive. If you think an inter vivos trust is something you might need, speak to a trust company that specializes in trust setup.

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