Understanding Inter Vivos Trust: What It Means and How It Works

The term “inter vivos trust” is used to describe a type of trust created during the lifetime of the grantor—as opposed to a will or testamentary trust. An inter vivos trust is an agreement between a grantor (also referred to as a settlor) and a trustee, wherein the grantor transfers ownership of property (typically money, but it can also include other assets such as real estate, stocks, jewelry, art, or cars) to the trustee. The trustee is responsible for managing and investing the property in accordance with directions of the grantor. Commonly, this trust is used to ensure that the grantor’s estate and assets are managed according to their wishes in the event of their incapacitation, instead of being handed over to the court.

Benefits of Inter Vivos Trusts

An inter vivos trust may also be used to reduce or avoid estate taxes, pass the grantor’s wealth to designated beneficiaries, and protect assets from creditors. It may also provide the grantor with control of how their estate is managed during their lifetime without having to change the structure of a will or go through the probate process. Inter vivos trusts also offer privacy for the grantor’s estate since they are not part of the public record like wills and other testamentary trusts.

Examples of Inter Vivos Trusts

A common use of an inter vivos trust is for transferring family wealth between generations. For example, a parent may establish an inter vivos trust and give the majority of their assets to a trustee for the benefit of their children or grandchildren. By utilizing an inter vivos trust, a parent can determine the manner in which their assets are dispersed upon their death (while also avoiding estate taxes), and can ensure that their children and grandchildren will have financial security. Other examples of trusts created during lifetime may include charitable remainder trusts, qualified terminable interest trusts, qualified personal residence trusts, and irrevocable life insurance trusts.

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Related Legal Concepts

Understanding inter vivos trusts often goes hand in hand with other estate planning tools such as QTIP trust structures and qualified personal residence trust arrangements. The broader concept of trust administration becomes crucial once these living trusts are established, as trustees must properly manage the trust corpus according to the grantor’s wishes. Many grantors also consider discretionary trust provisions to give trustees flexibility in distributions, while others explore directed trust arrangements where certain decisions are delegated to specified parties.

The Bottom Line

Inter vivos trusts serve as powerful estate planning vehicles that allow individuals to transfer and manage assets during their lifetime while maintaining control over distribution terms. These living trusts offer significant advantages including privacy, potential tax benefits, probate avoidance, and protection against incapacity. For guidance specific to your situation, always consult a qualified, licensed attorney.