Your living trust is not a mysterious legal document that has magical properties. Some people find living trusts to be very enigmatic creatures. At the end of the day, a living trust is like any legal document. It's commonly referred to as a "trust agreement." It's an "agreement" between the creator of the trust (often termed the "Settlor" of the trust) and the person who manages the trust (commonly known as the "Trustee").
In the case of an individual person, it's kind of strange to think of it as an "agreement" but it is nevertheless. It's easier to understand when thinking of a married couple creating a trust. However, at the end of the day, whether it's an individual or a married couple, a living trust is an "agreement" created between the Settlor(s) of the trust and the Trustee(s) of the trust.
Since the living trust is an "agreement", it's basically a contract between the Settlor(s) and the Trustee(s). As a contract, it can be legally enforced like any other contract. Therefore if someone is not playing by the "rules" of the trust, that person can be taken to court where the trust can be enforced. So imagine if a Trustee is using the trust assets in an improper way or is failing to account regularly to the beneficiaries (as required in most trusts), he/she can be taken to court where a judge will inquire and find out why the Trustee isn't following the rules of the trust.
The trustee is not the only person who has to play by the rules of the trust (the contract). The beneficiaries also need to follow the rules of the trust. For example, a beneficiary might have to wait till a certain age before they get their inheritance. In other circumstances, the beneficiary might not receive they inheritance right away, but perhaps in stages, upon certain milestones, etc.
If you think of a living trust like any other enforceable legal document, it becomes less mysterious and easier to understand. It's basically a contract or agreement that governs the use and distribution of assets in the name of the trust. That means the asset must be titled in the name of the trust. Not all assets are governed by a living trust. Only assets in the name of the trust, or payable to the trust, are ultimately governed by the trust.
For an asset to be "in" the trust, it must be titled in the name of the trust. For example, a parcel of real estate would be owned by "The John Smith Living Trust" instead of being in John Smith's name alone. The same goes for bank accounts or other investments. Think of the living trust like a bucket. Assets "in" the bucket are governed by the trust. Assets that are not in the bucket, are not governed by it.