A revocable living trust is set up during a person’s lifetime to name their wishes for the distribution of their assets after their death. They can change the terms of the trust at any time.
Trusts can include assets like cash accounts, life insurance policies, investments, real estate, and personal property.
There are several parties named in a revocable living trust. The owner of the assets who is initiating the trust is called the trust-maker or grantor. The person or institution who is responsible for managing and fulfilling the grantor’s wishes is the trustee. In a revocable trust, the grantor can handle the administration of the trust, unless they were to lose mental capacity. Then, in the case of incapacity of death, the administration would move to the named trustee. A beneficiary is who will gain access to the assets named in the trust.
Is a Revocable Trust Different From an Irrevocable Trust?
Another type of living trust is an irrevocable trust. Unlike a revocable living trust where the trust-maker keeps control, the beneficiary is the only party that can authorize changes to an irrevocable trust. The main reason for an irrevocable trust is for the potential tax-shelter benefits, which revocable trusts don’t offer.
Pros and Cons of a Revocable Living Trust
When a trust is in place, there is usually no need to go to probate to determine what to do with someone’s assets after they die. This is all legally documented in the trust. With a will, assets can be tied up in probate for a considerable amount of time.
For example, if someone owns real estate in multiple states when they die, each property would have to go through probate in the state it is located in if not named in the trust. If the property is included in the trust, the plan for the assets is legally documented, hopefully avoiding the need for probate to get involved.
With a revocable trust, beneficiaries are likely able to gain access to assets faster and with less hassle than with a will alone. However, it is important to remember that a trust does not replace a will, and usually both are needed.
While a revocable living trust seems like a good option because of the control the grantor keeps over their assets, there are drawbacks. For example, the assets in a revocable trust can be claimed by creditors. It also takes time and money to set up a trust. However, it is important to take into consideration that having a trust makes things easier for beneficiaries.
A trust also requires some administrative upkeep. For example, adding new assets to the trust or making any changes to beneficiaries.
It is important to meet with a qualified advisor to discuss your assets and what type of trust might work best for you.