An inter vivos trust is a trust you create and fund while you are alive, so that someone you choose can manage the property for your benefit and then pass it to your beneficiaries without probate. The name is Latin for “among the living,” which distinguishes it from a testamentary trust that only comes into existence through your will after you die. Because the trust already exists and already owns the property when you die, there is nothing for the probate court to administer.
The Three Roles That Make It Work
Every inter vivos trust has three roles, and one person can hold more than one of them. The grantor (sometimes called the settlor) creates the trust, transfers property into it, and writes the rules for how it is managed and distributed. The trustee holds legal title to that property and is responsible for managing it: paying bills, investing, and making distributions according to those rules. The beneficiaries are the people or organizations who receive what the trust pays out, whether that means income, lump sums, or eventual ownership of the assets.
The trustee owes a fiduciary duty to the beneficiaries. That means managing the trust solely in their interest and avoiding self-dealing, and where there are multiple beneficiaries, treating them impartially unless the trust document says otherwise. In a revocable trust, the grantor usually serves as the initial trustee and keeps day-to-day control. The document should always name at least one successor trustee to step in if the first one dies, resigns, or can no longer serve.
Trustees are entitled to reasonable compensation. What counts as reasonable varies by state and depends on the complexity of the assets, the time involved, and local custom. The trust document can set a specific fee, and family members named as trustee often waive compensation entirely. Professional or corporate trustees typically charge an annual percentage of trust assets.
Revocable or Irrevocable
Inter vivos trusts come in two forms, and the choice between them shapes almost everything else.
A revocable trust can be amended, revoked, or terminated at any time while you are alive. You can add or remove property freely and change beneficiaries whenever you want. Because you keep that control, the IRS and the courts treat the trust assets as still yours: they stay in your taxable estate, and your creditors can reach them as if you held them personally. Under federal law, any transfer where the grantor keeps the power to alter, amend, or revoke remains part of the grantor’s gross estate at death.1Office of the Law Revision Counsel. 26 USC 2038 – Revocable Transfers
An irrevocable trust is permanent. Once you transfer property in, you cannot change the terms or take the property back. Modifications after that are only possible with the agreement of the trustee and all beneficiaries, or by court order. In exchange for giving up control, a properly structured irrevocable trust can remove the property from your taxable estate and can shield it from certain creditors.
What You Can Put Inside
A trust can hold almost any property you can legally transfer. The collection of property inside the trust is called the trust corpus or principal. Once something is transferred, the trust is the legal owner for management purposes, even if your daily life does not change. You can still live in a house the trust owns; the title just belongs to the trust. Typical holdings include:
- Residential homes, vacation properties, and commercial real estate
- Bank accounts, brokerage portfolios, and certificates of deposit
- Vehicles, jewelry, and artwork
- Copyrights, patents, and royalty interests
How It Is Taxed
Tax treatment follows directly from whether the trust is revocable or irrevocable.
A revocable trust is a “grantor trust” for federal income tax purposes. All income it earns (interest, dividends, rent) is reported on your personal return using your Social Security number. The trust files no separate income return while you are alive.2Office of the Law Revision Counsel. 26 USC 671 – Trust Income, Deductions, and Credits Attributable to Grantors and Others as Substantial Owners If you use one of the optional reporting methods, you may need to give payers the trust’s name and your taxpayer identification number, or file information returns showing the trust as payer and yourself as payee.3Internal Revenue Service. Instructions for Form 1041 and Schedules A, B, G, J, and K-1
An irrevocable trust is a separate taxpayer. It needs its own Employer Identification Number and must file Form 1041 in any year it earns $600 or more in gross income.4Internal Revenue Service. When To Get a New EIN Trust tax brackets are far more compressed than individual ones. In 2026, the top federal rate of 37% hits trust taxable income above just $16,000, compared with well over $600,000 for a single filer. Income kept inside the trust is taxed heavily; income distributed to beneficiaries is taxed at their personal rates instead.
Transferring property into an irrevocable trust is a gift for federal tax purposes. In 2026 you can transfer up to $19,000 per beneficiary each year without triggering gift tax reporting, and amounts above that count against your lifetime gift and estate tax exemption.5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 The federal estate tax exemption for 2026 is $15,000,000 per individual, following the extension in the One, Big, Beautiful Bill Act signed into law on July 4, 2025.6Internal Revenue Service. One, Big, Beautiful Bill Provisions Married couples can effectively shelter up to $30,000,000 combined through portability. Below those numbers, federal estate tax is not a concern regardless of what kind of trust you use.
A revocable trust does not save estate tax. Because you can still pull the property back, its full value is in your taxable estate at death.1Office of the Law Revision Counsel. 26 USC 2038 – Revocable Transfers An irrevocable trust, where you have truly given up control, generally takes those assets out of the estate, which is the main reason high-net-worth families use them.
Why People Use One
Avoiding Probate and Keeping Things Private
Property held in the trust when you die passes directly to your beneficiaries under the trust’s terms, with no court involvement. Probate can take a year or more depending on the estate’s size and complexity, and the file is public: anyone can look up a probated will to see what the decedent owned, who the creditors were, and who inherits. A trust document is not filed with any court unless a dispute arises, so the assets, beneficiaries, and instructions stay private.
Managing Things If You Cannot
If you serve as your own trustee and later become unable to manage your affairs, the successor trustee you named can step in immediately. There is no guardianship or conservatorship proceeding to open, and no court order needed before bills can be paid or investments managed. The trust document should spell out what triggers that handoff so there is no ambiguity when the moment comes.
Creditor Protection, With Limits
A revocable trust gives no protection from creditors during your lifetime. Because you can reclaim everything in it at any time, the law treats the assets as yours. An irrevocable trust offers stronger protection because you have genuinely given up ownership. The document can also include a spendthrift clause that keeps beneficiaries from pledging future distributions as collateral and limits creditors’ ability to reach trust property. States enforce spendthrift clauses differently, and some creditors (the IRS and child-support enforcement agencies among them) may still get through regardless of the trust’s terms.
Setting One Up and Funding It
Creating the trust takes two steps that are easy to confuse. The first is signing the document. The grantor signs in front of a notary public, and some states also require witnesses. At that point the trust legally exists.
The second step is funding, and this is where many trusts fail. Funding means retitling your property into the trust’s name. An unfunded trust is an empty shell. Real estate requires a new deed from you to the trust, recorded with the county. Bank and brokerage accounts have to be retitled with the institution, usually with a copy of the trust or a trust certification. Vehicles are retitled through the state motor vehicle agency. Life insurance and retirement account beneficiary designations can be updated to name the trust, though retirement accounts deserve care because naming a trust as beneficiary can affect required minimum distributions. Any asset you leave in your personal name is not governed by the trust and may have to pass through probate.
Asset descriptions in the document should be precise. Use the legal description from a property deed rather than a street address, and include institution names and account numbers for financial accounts. Vague descriptions invite disputes about what the trust actually owns.
Pair It With a Pour-Over Will
Even a well-funded trust should be paired with a pour-over will. This is a short will that directs any property still in your personal name at your death into the trust. Without one, forgotten or newly acquired assets pass under your state’s intestacy statute, which may distribute them to people you would not have chosen. The catch is that anything the pour-over will captures still has to go through probate before it reaches the trust. The will is a backup, not a substitute for funding the trust properly while you are alive.