What Is A Living Trust? Learn The Meaning Of Creating A Living Trust

By: Josh S. Brown|LRL Writer

What is a living trust and how does it relate to the story of Nancy Cruzan? Here is an example: one night, in 1983, Cruzan was hit by a car that put her into a coma. Consequently, she was given an artificial feeding tube which kept her alive. Soon after, Cruzan's family petitioned to have the feeding tube pulled. However, the involvement of the state attorney general got the lower court's decision to be reversed, a decision that had kept her on a feeding tube in the first place. The lower court's rationale was that the family of Cruzan had not shown proof that Nancy herself wanted to discontinue having the feeding tube. Subsequently, the US Supreme Court reviewed the decision and sided with the family of Cruzan. The implication of the Supreme Court's ruling was that a living trust had better stipulate that, before a disaster happens, you should sign a living trust that expresses your wishes or desires. This story illustrates the importance of having a living trust.

First of all, what is a living trust? To understand that, we must understand what trusts are and how they work. A trust is an arrangement between three parties: the beneficiary, the trustor, and the trustee. What happens is the trustor arranges to have his or her property transferred to the trustee, who in turn holds it to be delivered to the beneficiary. The Latin term trust corpus is the property that is held.

In answering the question, what is a living trust, here is another example. Suppose you are 75 years of age, and are nearing the end of your life. And let's assume furthermore that you have three kids, whom you want to distribute your property to equally. What you can do is set up a trust, which stipulates who is to get what property and/or how much. If you have a bank, then, in the event that you die, your property would be held by the bank (who is the trustee), who in turn would distribute it to your kids, who are the beneficiaries.

In terms of powers or authority, in general, the trustee manages the trust. Indeed, in many cases, the trustee may take the property and invest it. In any event, the trustee must adhere to the stipulations in the trust agreement.

The Two Types Of Living Trusts

First, you can have a trust that is created voluntarily, and these types of trusts, which are usually written, are what called express trusts. Second, you also have what are called implied trusts. As the word imply suggests, they are not written. Rather, they act as if there really were a trust. With express trusts, there are two categories: testamentary trusts and living trusts. The creation of living trusts occurs during the life of the settler before he or she dies. In short, as the above example demonstrates, it's a good idea to ensure you have a living trust before you die.

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