What is a living trust?

A trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust.

A "living trust" (also called an "inter vivos" trust by lawyers who can't give up Latin) is simply a trust you create while you're alive, rather than one that is created at your death under the terms of your will.

Different kinds of living trusts can help you avoid probate, reduce estate taxes or set up long-term property management.

Do I need a living trust?

The big advantage to making a living trust is that property left through the trust doesn't have to detour through probate court before it reaches the people you want to inherit it. In a nutshell, probate is the court-supervised process of paying your debts and distributing your property to the people who inherit it.

The average probate drags on for months before the inheritors get anything. And by that time, there's less for them to get: In many cases, about 5% of the property has been eaten up by lawyer and court fees.

Still, not everyone has to worry about probate, and some people don't need a living trust at all.

How does a living trust avoid probate?

Property you transfer into a living trust before your death doesn't go through probate. The successor trustee -- the person you appoint to handle the trust after your death -- simply transfers ownership to the beneficiaries you named in the trust. In many cases, the whole process takes only a few weeks, and there are no lawyer or court fees to pay. When all of the property has been transferred to the beneficiaries, the living trust ceases to exist.