Retirement planning involves identifying goals, investing for your future, and managing risk so you can enjoy a financially secure retirement. A living trust can be an important part of an estate plan because it can help organize assets, provide instructions for their management, facilitate transfer to beneficiaries, and potentially avoid probate for assets properly titled in the trust. This guide explains how living trusts work, their potential benefits and limitations, and how they fit into broader retirement and estate planning.

Key Takeaways

  • A living trust differs from a will in that you have more control over the timing and distribution of your assets with a living trust.
  • The two main types of trusts are revocable and irrevocable, which determine  your ability to make changes to each once executed.
  • One of the main advantages of a living trust is that it allows your beneficiaries to skip probate, which is often a costly and timely process.
  • A living trust can help protect your assets and liabilities while still living.
  • An irrevocable living trust may allow your beneficiaries to avoid estate taxes.

What Is a Living Trust?

A living trust is a financial tool that allows you to transfer your assets to a shared entity. This legal agreement helps you protect your assets and specify what happens to them after your death. A living trust also helps preserve your assets for your beneficiaries by allowing them to skip probate.

A living trust differs from a will in that you have more control over your assets with a living trust. A will designates your beneficiaries, who then receive ownership of your assets after your death. With a living trust, you maintain control of the assets while living. After your death, the living trust names a trustee who oversees the trust, including allocating assets based on your specific instructions.

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Reasons To Consider a Living Trust To Secure Your Retirement

By making a living trust part of your retirement planning goals, you can:

Avoid Probate

Probate is the legal review and transfer of an estate’s assets to its beneficiaries. It’s often an expensive and time-consuming process. Each asset you own, including properties, vehicles, and bank accounts, goes through the probate process before transferring to your beneficiaries.  By creating a living trust, you can move your assets out of your name and into a trust. Once completed, the assets belong to the trust rather than the individual, which removes the need for probate.

Specify Specific Instructions for Assets

Most trusts include specific instructions on how the trust should transfer to beneficiaries. This means you can determine precisely how you want to allocate your assets, including when and under what circumstances. You can create special situations that allow children or grandchildren to access funds for needs, such as education or marriage.

Manage Business or Rental Assets

A living trust can also be a great strategy for managing business or rental assets. If you become incapacitated or unable to make business decisions, a living trust allows your designated trustee to take over. If real estate investments or assets are part of your retirement strategy, a living trust is worth considering. A living trust allows your successor trustee to make important financial decisions and communicate with banks or lenders on your behalf. A living trust protects you while living by preserving your assets and preventing others from liquidating them on your behalf.

Plan for Incapacity

Estate planning is not limited to what happens after death. A well-drafted revocable living trust can provide continuity of management if the grantor becomes unable to manage trust assets personally. A successor trustee can step into the role according to the trust’s terms, potentially reducing disruption during a period of incapacity.

Protect Confidentiality

A living trust can provide greater privacy than a probate proceeding in some circumstances because trust administration generally does not require the same public court filings associated with probate. Privacy should not, however, be confused with creditor protection. A revocable living trust generally does not shield assets from the grantor’s own creditors merely because the assets are titled in the trust.

Revocable vs. Irrevocable Living Trust

The two broad categories discussed in estate planning are revocable and irrevocable trusts. A revocable living trust can generally be amended or revoked by the grantor while the grantor has the required capacity. Because the grantor typically retains substantial control, assets in a revocable trust generally remain included in the grantor’s estate for federal estate-tax purposes and are generally available to the grantor’s creditors under applicable law.

An irrevocable trust generally involves giving up some degree of control over the transferred property. Depending on its terms and administration, an irrevocable trust may serve estate-tax, asset-protection, or succession-planning purposes. An irrevocable trust is not automatically excluded from the grantor’s taxable estate, however. The federal estate-tax consequences depend on the specific trust terms, retained powers and interests, the nature of the transfer, and applicable tax law.

Will a Revocable Living Trust Avoid Estate Taxes?

A revocable living trust generally does not avoid federal estate taxes. Because the grantor typically retains control over the trust assets, those assets generally remain part of the grantor’s taxable estate for federal estate-tax purposes.

For 2026, the federal estate and gift tax basic exclusion amount is $15 million per individual. This is the basic exclusion amount used in determining the amount of an individual’s taxable transfers that may be sheltered from federal estate and gift tax, subject to the applicable rules and adjustments. The federal estate tax is based on the taxable estate after applicable deductions and other adjustments, rather than simply on the gross value of assets owned at death.

State estate and inheritance taxes are separate from the federal estate tax. States may impose their own taxes, exemptions, and filing requirements, so an estate that is below the federal threshold may still require state-level planning.

For individuals whose estates may exceed applicable federal or state thresholds, an irrevocable trust may be one potential planning strategy. Depending on its structure and administration, an irrevocable trust may allow certain assets to be excluded from the grantor’s taxable estate. It does not do so automatically, and transfers to an irrevocable trust should be evaluated before they are made.

For 2026, the federal annual gift-tax exclusion is $19,000 per recipient, per donor. Gifts that qualify for the annual exclusion generally do not use the donor’s lifetime basic exclusion amount, although special rules apply to certain transfers.

What To Expect When Creating a Living Trust

Creating a living trust should be part of your retirement planning strategy if you want to preserve and protect your assets. Here are the steps you can expect when drafting a living trust with your financial advisor:

Draft a Living Trust

First, your financial advisor will help you set up and name a trust into which you’ll later transfer your assets. Putting your financial assets into a living trust removes your name from them and instead transfers ownership to the trust. You’ll then name you and your spouse as the trustees of the living trust. You can list any children, grandchildren, or dependents as your beneficiaries. The great thing about a living trust is that you won’t lose control of your assets and can continue managing their daily operations.

Identify and Fund Assets

A trust only controls assets that are properly transferred to it or otherwise connected to it under the applicable estate-planning documents. Depending on the circumstances, assets that may be considered for trust ownership include real estate, certain investment or bank accounts, and business interests. Each asset should be reviewed individually because transfer requirements and tax consequences can differ.

List Assets

Include any assets you own that you want to transfer to the living trust, such as real estate, investment accounts, money market accounts, and annuities. Consider also including physical assets, such as jewelry, gold or safe deposit boxes, and life insurance policies. It’s also possible to put businesses in a living trust, including sole proprietorships, partnerships, and limited liability corporations.

Consider Assets That Require Separate Planning

Retirement accounts such as IRAs and qualified retirement plans generally are not retitled in the name of a living trust during the owner’s lifetime in the same manner as ordinary trust assets. Instead, beneficiary designations are commonly used to determine who receives retirement-account assets after death. Naming a trust as a retirement-account beneficiary can have significant tax and distribution consequences, so the designation should be coordinated with the overall estate plan.

Life insurance, health savings accounts, vehicles, and other assets may also require separate planning or beneficiary designations. The appropriate treatment depends on the asset and the owner’s goals.

Create Distribution Directions

The trust agreement should explain who receives trust assets, when distributions occur, and what conditions or standards apply. The provisions can be tailored to the beneficiaries and the nature of the assets. Special provisions may be appropriate for minor beneficiaries, beneficiaries with special needs, blended families, or beneficiaries who may need additional financial oversight.

Choose a Successor Trustee

A successor trustee is the person or institution designated to manage the trust when the initial trustee can no longer serve. The selection should take into account reliability, financial judgment, availability, and the complexity of the trust. Depending on the trust, a professional or corporate trustee may also be considered.

Make Updates as Needed

It’s important to update your living trust as asset ownership changes. If you sell or acquire new assets, you’ll need to update your living trust. You can usually change a revocable living trust through living trust amendments. A living trust amendment updates certain parts of your living trust without redoing the entire document.

Making living trust updates with Anderson Advisors is easy. As long as Anderson Advisors created your initial living trust, you can conveniently request updates via email, and our Estate Planning Department will make the changes. Of course, you can always request a living trust review with our financial advisors if you don’t yet have one or are no longer working with the original firm that drafted your trust.

A living trust offers many benefits, including preserving and protecting your assets. Not only does a living trust protect you while living, but it also helps your beneficiaries access assets easier without costly or timely probate. Contact Anderson Advisors today for a consultation, where we’ll review your living trust or help you set up a new one from scratch. We’ll help you create specific instructions to ensure your assets are allocated according to your plans.

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