A lot of people are told they need a “trust” for a proper estate plan.  However, there are many different kinds of trusts, including living trusts, so it is very important to know what kind of trust you are talking about.  Here we will discuss several common types of trusts.

Types of Living Trusts

In this article we will discuss the first category of trusts are those that are created while you are still alive to allow you to transfer your money and/or property into them.  These include revocable trusts, which allow you to eliminate or change them, and irrevocable trusts, which cannot be changed by the person creating them.

Why are Living Trusts Needed?

The main reasons people believe they need living trusts are (1) protection of assets from estate taxation, (2) protection of assets from creditors, or (3) avoiding probate.  Estate planning attorneys frequently tell clients they need to spend a lot of money creating living trusts for these reasons.  However, despite this advice these reasons do not apply to most people.

Estate Taxation

In the case of estate tax, because the exempt amount is generally high enough that almost nobody is subject to estate taxation.  As of 2020, Federal estate taxes apply to portion of the estate over 11.58 million – 23.16 million for a married couple (for deaths in 2020).  Unless Congress renews the law setting those amounts those exemption will sunset December 31, 2026, and be cut in half, but will still be over 6 million of an individual and 12 million for a married couple.  Democrats in Congress have introduced a bill to cut the exemption to 3.5 million, so if they control the presidency and both houses of Congress after the next election that cut to the exemption may become a reality.  However, even this “worst case” scenario of 3.5 million will still mean the vast majority of people will not be subject to estate taxation.

Asset Protection

As for protecting assets from creditors, clients should know that this may not work, particularly if the trust was created recently before the assertion of the claim, or if the client knew of the claim at the time the trust was created.  The transfer of assets to the trust can be considered a “fraudulent conveyance” and reversed by the courts.

Avoiding Probate

Finally, the creation of living trusts is sometimes suggested to avoid having to probate one’s estate.  However, there are far less expensive and complicated ways of avoiding probate, such as using joint or pay on death accounts, and beneficiary deeds.

In Summation

Living trusts are very expensive to create and complicated to maintain.  Although some people may need these, to the vast majority they are unnecessary.  However, living trusts are not the same as trusts that are created upon death, called testamentary trusts, and different and should be considered in many cases.  We will cover these trusts in our next installment.


Sam Ventola has over 30 years’ experience in estate planning, probate and probate litigation.  When he is not working for his clients, he enjoys spending time with his family, especially his grandson Jack.

Ventola Law serves the Denver Metro area including Arvada, Aurora, Boulder, Brighton, Commerce City, Castle Rock, Golden, Lakewood, Littleton and Arapahoe, Adams, Douglas and Jefferson Counties.