Defining a Revocable Trust
A trust is a written agreement which sets up a separate legal entity that names someone to be responsible for managing property for the benefit of others.
A Revocable Trust (also called a “living trust” or “revocable living trust”) is one type of trust.
It is a “living” trust because it is created during the lifetime of the creator. It is “revocable” because as long as the creator is mentally competent, the trust may be amended or revoked.
A Revocable Trust is considered a will substitute. By executing and funding a Revocable Trust some of the difficulties that occur during probate (the process of adjudicating a will) can be avoided.
What a Revocable Trust Can Accomplish which a Will Alone Cannot
Provide financial management of the grantor’s property- A will is only effective after death while a Revocable Trust can have a Trustee appointed at any time.
Avoid probate of most assets- Property in a Revocable Trust is available for immediate distribution after death because it does not go through probate.
Eliminate Challenges to the Estate- A will challenge is an all too common occurrence. A trust avoids this burdensome litigation.
Permits privacy- A Revocable Trust has privacy advantages because unlike a Will, it is not a public document.
What a Revocable Trust is Unable to Do
Cannot Reduce Estate and Income Taxes- Items in a Revocable Trust are still part of taxable estate. Certain types of Irrevocable Trusts can utilize tax avoidance measures.
Cannot Increase Asset Protection- Revocable Trusts are not suitable for debt protection or Medicaid planning.
Avoid costs associated with probate- Attorney, accounting and tax filing fees will still be incurred.
Disadvantages to a Revocable Trust
Cost– Drafting the documents and re-titling your assets costs significantly more than drafting and executing a will
Complexity- Transferring property into the trust and any subsequent transfer is frequently more cumbersome than transfer by an individual.
Probate- If you forget to transfer even one item that you own into the trust, probate will still be necessary.
Circumstances Where a Revocable Trust Has Clear Advantages
Real Estate Held in More Than One State- Real estate held in a Revocable Trust can avoid probate in multiple states.
Will Contest Expected- If you anticipate that an heir will contest your will- a Revocable Trust will avoid the expenses of litigation.
Likely Need for Financial Management- If you expect in future you will become incapacitated or otherwise unavailable to handle your financial affairs, a Revocable Trust will avoid costly guardianship proceedings or the possibility of a Power of Attorney being rejected.
No Immediate Family- Revocable Trusts can avoid costly and cumbersome court required search for heirs.