Inter Vivos Trusts

Inter vivos (intervivos) trusts are simply trusts created while you are still alive. This is opposed to a testamentary trust, which are created in your will and only enacted upon your death. There are many types of inter vivos trusts, all of which avoid probate court and some of which can even help you reduce and avoid estate taxes.

Now that you learned what inter vivos means in a trust, let’s look at the inter vivos trust taxation. If you need legal help from an attorney, just enter your ZIP code in the box.

What is the difference between revocable vs. irrevocable inter vivos trusts?

Many people want to find the best solution for eliminating estate taxes for their surviving family. One misconception of inter vivos trusts is that all trusts created while you are alive avoid tax liability. Current tax law divides inter vivos trusts into two distinct categories: revocable and irrevocable. Revocable trusts can be canceled and controlled by the benefactor and are still accountable for estate taxes because no taxes are paid when assets are transferred into the trust. Irrevocable trusts, on the other hand, cannot be canceled or controlled by the benefactor, but are free of estate taxes because income taxes are paid whenever anything is deposited into the trust.

What are the benefits of inter vivos trusts?

Inter Vivos trusts help avoid the lengthy and costly probate process (the process of distributing the deceased’s assets in court). A properly established trust helps to ensure that the assets get distributed to their intended recipients in time. The family members receive the assets without any disruption in their use.

In a revocable living trust, the trustor can also be the trustee (meaning that the trust owner controls the assets). However, since the assets are in the trustor’s name, estate taxes might apply if the value of the assets exceeds the estate-tax exemption at the time of the trustor’s death. If the trustor creates an irrevocable living trust, the trustor essentially reduces the estate’s value and would thus reduce the taxes on the estate.

What are inter vivos bypass trusts?

One of the most common trusts to create and activate while still living is a bypass trust. Bypass trusts are created to channel a married couple’s wealth in an effort to avoid tax liability for both the surviving spouse and the later beneficiaries. Under current tax law, couples can transfer money between themselves without any tax liability. However, doing so greatly increases the amount of tax liability owed by their surviving family. In order to avoid this, couples with a large estate can create a trust that provides for the needs of the surviving spouse while still removing money from their estate without tax consequences.

Some common inter vivos bypass trusts include AB trusts and ABC trusts. Both of these use the annual estate amounts to determine how much wealth can be channeled from the couple’s estate and how much must remain in a secondary trust for the surviving spouse.

What’s the difference between inter vivos guardianship and conservatorship trusts?

Inter vivos guardianship trusts are created by parents to provide for the financial needs of their children in the event that both parents die. These trusts typically contain specific provisions that detail how the trust funds must be spent. Typically covered topics include the health, welfare, and education of the children.

Inter vivos conservatorship trusts are created for the care of someone in the event of incapacitation. With medical advances extending people’s lives much more than in previous generations, many people’s entire estate is spent on their care in the later years of their life. To avoid this problem and ensure that the incapacitated person’s portfolio is well managed, many couples will remove their wealth into a conservatorship trust. This trust can be phrased to simply allow another person the ability to manage the trust assets or can be complex enough to limit the expenditures from the trust to only being released after measures such as insurance and government aid are exhausted.

What are inter vivos spendthrift trusts?

No one wants to think of their wealth being squandered by an irresponsible child. A way around this problem is an intervivos spendthrift trust in which specific provisions prevent the beneficiaries from signing away their wealth and creditors from taking money from the trust.

What is inter vivos charitable trust?

If you would rather avoid estate taxes and liability entirely and have no surviving offspring to concern yourself with, then creating a charitable trust may be a worthwhile consideration. Charitable trusts are created for the purpose of supporting a charitable cause over a long period of time. Charitable trusts can be created for churches, humanitarian organizations, and even schools and are free from any estate tax liability.

Case Studies: Inter Vivos Trusts

Case Study 1: The Smith Family Revocable Trust

The Smith family, consisting of John and Mary Smith, decided to create a revocable inter vivos trust to manage their assets and plan for their estate. By establishing the Smith Family Revocable Trust, they retained control and flexibility over their trust assets during their lifetime. This allowed them to make changes, add or remove assets, and revise beneficiaries as needed.

The revocable trust also provided a smooth transition of assets to their children after their passing, bypassing the need for probate. The Smiths found peace of mind in knowing that their assets would be efficiently managed and distributed according to their wishes.

Case Study 2: The Johnson Family Irrevocable Trust

The Johnson family, comprised of Robert and Sarah Johnson, wanted to protect their substantial estate from estate taxes and ensure the financial security of their children and grandchildren. They decided to establish an irrevocable inter vivos trust known as the Johnson Family Irrevocable Trust. By transferring their assets into the trust, the Johnsons effectively reduced the taxable value of their estate.

This allowed them to pass on a larger portion of their wealth to their beneficiaries, minimizing the impact of estate taxes. Although they relinquished control over the trust assets, they were confident in securing their family’s financial future.

Case Study 3: The Thompson Charitable Trust

Mr. James Thompson, a philanthropist passionate about education and community development, decided to create an inter vivos charitable trust. The Thompson Charitable Trust was established to support various educational initiatives, scholarships, and programs for underprivileged youth in his community. By transferring a portion of his assets into the trust, Mr. Thompson ensured a lasting impact even after his passing.

The charitable trust not only allowed him to contribute to causes close to his heart but also provided significant tax advantages, including exemption from estate taxes. Mr. Thompson’s legacy lived on through the charitable work facilitated by his trust.​