Our estate-planning clients often ask what a revocable trust is and why they might need one. For many people, a revocable trust is an important element of their estate plan.
A revocable trust, also known as a living trust or a revocable living trust, is a legal arrangement that allows you to manage and distribute your assets during your lifetime and after your death.
The reason this type of trust is called “revocable” is because it can be “revoked” while you are still alive. That means that as the “grantor” — the name given to you as the person who created and funded your revocable trust — you retain control over it.
You are essentially the “president” of the trust. You can add or remove assets from the trust, change beneficiaries, adjust the terms of distribution, and even dissolve the trust entirely if you wish.
A revocable trust allows the grantor to give someone else — known as the trustee — the power to make financial decisions for them, in the event that they become unable to due to injury, illness or death.
When you die, the trust becomes irrevocable, which means it can no longer be changed. Your chosen trustee then uses the trust document to designate who will receive your and property, based on your wishes.
5 Benefits of Setting Up a Revocable Trust
- Your heirs will not have to go through probate: Avoiding the time-consuming and costly probate process is a key reason why people create revocable trusts. When a person passes away, any of their assets held in a revocable trust can pass directly to their named beneficiaries, without having to go through probate.
- The details of your estate will be more private: When an estate goes through probate, the assets, beneficiaries and other information become part of the public record. Revocable trusts provide more privacy because the distribution of assets happens privately, based on the terms of the trust.
- You maintain flexibility and control over your assets: While the grantor of a revocable trust is alive, they are also the trustee — which means they have total control to modify the trust’s terms and beneficiaries as circumstances change.
- You can plan to have your assets managed if you are no longer able to do so on your own: A revocable trust can include provisions for managing the grantor’s assets if they become incapacitated. That will help avoid the need for a court-appointed conservator or guardian.
- It will be easier to settle your estate: Given that the trust explains how the estate’s assets should be distributed, the settlement of the estate can be quicker and less complicated than the probate process.
While there are many benefits to a revocable trust in the right situation, it is important to be aware that the assets in a revocable trust are still considered part of your estate for tax purposes.
A skilled revocable trust lawyer can help you decide whether you need a revocable living trust and create one on your behalf.
There are many pitfalls you can encounter if you try to create a revocable trust on your own. Contact an experienced revocable trust attorney for help now.