Legal Definitions - inter vivos trust

An inter vivos trust is a legal arrangement for managing assets that is created and takes effect during the lifetime of the person establishing it (known as the "settlor" or "grantor"). The term "inter vivos" is Latin for "between the living," highlighting that this type of trust is active and operational while the settlor is still alive, rather than only coming into existence after their death.

Unlike a testamentary trust, which is established through a will and only becomes effective upon the settlor's death, an inter vivos trust allows assets to be transferred into it immediately. This can offer several advantages, including avoiding the potentially lengthy and public probate process for those assets, maintaining privacy regarding asset distribution, and providing a mechanism for managing assets if the settlor becomes incapacitated. An inter vivos trust can be designed to be either revocable (meaning the settlor can change or cancel it) or irrevocable (meaning it generally cannot be altered once established).

Here are some examples of how an inter vivos trust might be used:

• Estate Planning and Probate Avoidance: Imagine a couple, Sarah and Tom, who own a home, investments, and other valuable assets. They want to ensure that when they pass away, their children inherit these assets smoothly, privately, and without the delays and costs associated with probate court. They decide to create an inter vivos trust, naming themselves as initial trustees and their children as beneficiaries. They then transfer ownership of their home and investment accounts into the trust. Because these assets are now legally owned by the trust, upon Sarah and Tom's deaths, the assets can be distributed to their children by the successor trustee according to the trust's instructions, completely bypassing the probate process. This trust was established and funded while they were alive, making it an inter vivos trust.

• Asset Management in Case of Incapacity: Consider David, a successful business owner who travels frequently. He wants to ensure that his financial affairs and business interests are managed effectively even if he were to become seriously ill or incapacitated and unable to make decisions himself. David establishes a revocable inter vivos trust, transferring his personal investments and a portion of his business shares into it. He names himself as the initial trustee and appoints his sister, Emily, as the successor trustee. If David were to become incapacitated, Emily would automatically step in as trustee, managing the trust assets according to the detailed instructions David laid out in the trust document. This arrangement was put in place and became active during David's lifetime to prepare for future contingencies.

• Philanthropic Giving: Laura, a retired educator, wishes to establish a scholarship fund for students pursuing careers in environmental science, with the fund beginning to award scholarships immediately and continuing for many years. She doesn't want to wait until her death to start this initiative. Laura creates an inter vivos trust, funding it with a significant sum of money. She appoints a local bank's trust department as the trustee, tasking them with investing the funds and distributing scholarships annually according to specific criteria outlined in the trust document. This trust is active and operating during Laura's lifetime, allowing her to see her philanthropic vision come to fruition while she is still alive.