What is a Revocable Trust? Is it different from a Living Trust?
A Revocable Trust and a Living Trust refer to the same thing (you may even see the term “Revocable Living Trust”). A Revocable Trust is a form of trust created during the lifetime of the grantor (the person establishing the trust). A trust involves three parties: 1) Grantor – the person who creates the trust; 2) Trustee – the person named by the grantor to manage the property placed in the trust; 3) Beneficiary – the person(s) named to receive (“benefit from”) the property placed in the trust. In most cases, a person who creates a Revocable Living Trust serves as the grantor, trustee, and lifetime beneficiary. The grantor of a revocable trust retains the right or power to revoke, terminate and change the terms of the trust at any time. If the trust is “revocable,” it means that the grantor can terminate the trust and regain possession of the property she previously contributed to the trust. Or the grantor can simply amend the trust by specifically following the amendment procedure that is usually outlined in the trust agreement.
What are the advantages and disadvantages of a Revocable Trust?
The primary advantages of a Revocable Trust are: 1) to ensure that your assets will continue to be managed without interruption in the event of your disability without the need for a guardianship; 2) to avoid probate; 3) to avoid a separate or “ancillary” probate of assets located in another state (i.e., a vacation home); and 4) to secure some privacy in the management and distribution of property (records of probate proceedings are part of the public record and available for inspection by any curious person). Contrary to what some promotional material might imply, there are no specific tax advantages to using a Revocable Trust.
Disadvantages include: 1) the requirement that in order to avoid interrupted management and probate, your assets MUST be properly transferred or retitled into the name of your trust before your death or disability which involves additional effort, time and expense; and 2) the need to constantly monitor your assets to ensure that as circumstances and assets change, your assets remain correctly titled.
What is the difference between a Will and a Revocable Trust?
A Will and a Revocable Trust are alternative ways to provide for the management and distribution of your property and the winding up of your affairs at your death. A Will is required to be probated at the time of your death, which is a public proceeding. A Revocable Trust provides some measure of privacy, and is also effective in the event of your disability (assuming your assets have been properly placed in your trust). A Will, by contrast, does not become effective at all until your death, and then it must be admitted to probate. A Will is simpler and less expensive to create and does not require anything to be done with your assets until your death.
How do I determine if I need a Will or a Revocable Trust?
Usually, those who make Wills tend to be younger or they expect their assets to change several times before they die. For example, a young couple just starting a family may sell and buy a series of homes, acquire vacation property, make other investments and buy and sell other items of property before their deaths. For younger couples, potential disability and health care decisions can be handled with durable powers of attorney, living wills and health care directives.
A Revocable Trust might be advantageous if you are older, own property in more than one state, and/or you don’t expect the nature or composition of your assets substantially change.
How do I establish a Revocable Trust?
A Revocable Trust is established by a written agreement created by the person who creates the trust (sometimes referred to as either a “grantor,” “settlor,” or “trustor”). The grantor transfers property to the trust and names a trustee to manage the trust property. The grantor is often the trustee of his or her own trust. The grantor can be the only trustee or one of the trustees, and is usually the only trust beneficiary during his or her lifetime. Upon the grantor’s death or her lack of capacity to act as a trustee, the remaining trustee (if there is one) may continue to act as the sole trustee, or a successor trustee will be named or appointed according to the terms of the trust agreement. And, at the grantor’s death, the trust property passes to the beneficiaries named to inherit the property according to the terms of the trust.
How do I transfer my assets to a Revocable Trust?
Transferring assets to a Revocable Trust requires that different types of property the grantor owns are placed in the trust. This is done by changing the name of the owner or beneficiary of each asset. The Revocable Trust must become the legal owner or beneficiary in order to benefit from the advantages described earlier. We recommend that you seek guidance from a qualified attorney to assist with such transfers.
What is the difference between a Revocable Trust and an Irrevocable Trust?
A Revocable Trust may be revoked or amended by the grantor at any time, as long as the grantor has capacity to do so. An Irrevocable Trust may not be revoked or amended in any way once established. A grantor can create an irrevocable trust by entering into an agreement with a trustee under which the grantor does not reserve the right to revoke the trust. A revocable trust becomes irrevocable when the grantor dies.