What Is an Inter Vivos Trust?

An inter vivos trust — also known as a living trust — is an estate planning document and fiduciary agreement established while you’re alive to ensure your assets are distributed according to your wishes during your lifetime and after your death. “Inter vivos” is Latin for “between the living.” 

Inter vivos trusts have their name because a transfer of assets happens while you’re still alive (rather than after you die). You can use an inter vivos trust to name beneficiaries for your property, much like you would with a will. Unlike a will, however, inter vivos trusts typically don’t have to go through probate — which is a significant advantage. Instead, you appoint a trustee to manage trust assets and distribute them after you die.

How an inter vivos trust works

After setting up your inter vivos trust and appointing a trustee, you transfer your selected assets into the trust’s ownership. 

When you die, the trustee you’ve appointed takes on the authority to distribute the trust assets to your chosen beneficiaries.

Inter vivos trusts are most commonly revocable (meaning you have access to the assets and you can make changes to the trust while you’re alive), but they can also be irrevocable — a trust that the grantor cannot change or revoke^[0]

What to put in an inter vivos trust

You can transfer many types of assets into an inter vivos trust, including:

• Bank accounts. Savings, checking, certificates of deposit and money market accounts are examples of these. Also, safe deposit boxes and nonretirement investment accounts, such as brokerage or mutual fund accounts may be included.

• Bonds, stocks and other investment assets. Reissue the assets’ certificates in the trustee’s name, or complete a transfer document.

• Life insurance policies. Transfer ownership of the policy to your trust or name the trust as the policy’s beneficiary.

• Real estate. Land and homes in and out of state may be transferred.

• Limited liability companies. If you’re an LLC member, you can transfer your company interest into an inter vivos trust. Be aware that you’ll likely need approval from all stakeholders in the LLC before doing this.

• Cryptocurrency. Because cryptocurrency is so new, using an estate lawyer is especially important to make sure you’re in sync with current estate law in this area.

• Tangible personal property. You can assign property such as jewelry or fine art to your inter vivos trust.

Not all assets can go into inter vivos trusts, and some permitted still aren’t usually recommended. These include:

• Health savings accounts. Consider naming the trust as your beneficiary.

• Retirement assets. Although it is technically possible to transfer retirement accounts into trusts, account administrators may treat it as if you had cashed out the account, resulting in unwanted tax consequences and penalties. Consider naming a nontrust beneficiary on the account instead.

• Certain vehicles. Cars tend to depreciate in value over time, so they may not be worth the paperwork to retitle them in the trust’s name. However, if your attorney recommends, you may want to include classic collectible cars in your trust because they tend to appreciate in value.

• Cash. Physical cash can’t be placed into a trust.

• Foreign assets. You might not be able to transfer these to a U.S.-based trust.

Advantages of inter vivos trusts

Creating an inter vivos trust has several advantages, including:

• Avoiding the time and expense of probate. This type of trust generally isn’t subject to probate, so your trustee can distribute your assets to your chosen beneficiaries quickly and efficiently after death^[0]

• Maintaining control of assets. As long as you’ve set up your trust as revocable, you can transfer assets in and out as you please with no need for court approval.

• Avoiding conservatorship. You can name a person of your choice to have authority over your trust assets if you ever become incapacitated and incapable of handling your affairs.

• Offering flexibility. Revocable inter vivos trusts tend to be more flexible than other trusts with limited uses or set timelines. This means you can still reap the benefits of your assets during your lifetime and leave what’s left to your beneficiaries when you die. Additionally, inter vivos trusts allow you to distribute assets over time. For example, if you don’t want younger beneficiaries to receive assets until they’re older, an inter vivos trust can remain active for years or even decades after death.

• Maintaining privacy. Unlike a will, a living trust doesn’t become a public record, so your final wishes remain private^[0]

  The Superior Court of California County of Orange. Living Trusts. Accessed Mar 7, 2023.

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• Protecting against court challenges. Trusts are generally more difficult to contest than wills.

Disadvantages of inter vivos trusts

Although inter vivos trusts have many advantages, there are also some drawbacks.

• Expense: It typically costs more to draft and fund a trust than to prepare a will.

• Trust must be funded: You must transfer your assets into the inter vivos trust while you are alive. Assets you neglect or forget to put in the trust before death may be subject to probate.

• Can’t name guardians or property managers for your children: Inter vivos trusts don’t allow you to name guardians or property managers for kids; however, you can pair your trust with a pour-over will that does name your chosen guardians or property managers.

• No outside oversight: No external forum can resolve disputes or clarify confusion should issues arise.

• Can’t name an executor for your estate: Inter vivos trusts don’t let you name an executor; you designate a trustee who manages your trust assets. You may want also to create a will that names an executor to manage any assets or wishes not covered by the trust.

Creating a revocable inter vivos trust won’t reduce estate taxes, but a will won’t either. Most estates don’t owe estate taxes, so this likely won’t be a concern. The federal estate tax ranges from rates of 18% to 40% and generally only applies to assets over $12.06 million in 2022 or $12.92 million in 2023.

The income you receive from assets in your revocable inter vivos trust typically must be reported to the IRS and reported on your personal tax return.

If your estate is large enough to be subject to estate taxes, you may want to consider an irrevocable inter vivos trust. Assets in an irrevocable trust aren’t part of your estate for tax purposes, which can reduce estate taxes for your beneficiaries. Be aware, however, that if you establish an irrevocable trust, you give up control of any assets you put in it.

Inter vivos trusts aren’t the only types of trusts you can form. Here are a few others to be aware of: