A revocable trust is a type of written, legal agreement in which a person gives control of assets (money, real estate, personal possessions, etc.) to another person or institution. It is called a revocable trust because it can be changed or ended by the grantor (person who creates the trust) during his or her lifetime. It's also known as a revocable living trust because it's created while the grantor is still alive. The assets in the trust pass to the beneficiaries (recipients of the assets) only after the person who set up the revocable trust dies.
Pros and cons of a revocable trust
While a revocable trust has many advantages, it has disadvantages as well.
A revocable trust can do the following:
Offer management of your property
Provide for your family after you die
Help you and your family avoid probate and eliminate delays in distributing assets
A revocable trust cannot do the following:
Provide state or federal tax relief
Protect your assets from creditors if you are in debt
Help you avoid probate costs (costs associated with distributing the assets)
Help you avoid nursing home costs
Eliminate the need to create a will
Setting up a revocable trust
Creating a revocable trust is one way to make sure your dependents will be financially secure if you die or become disabled. The trust sets up a reliable third party—the trustee—to manage and distribute the assets.
Any competent adult can be appointed trustee, though many people choose a financial institution instead.If you choose an individual, be sure to name a successor trustee to fill the role if the original trustee can no longer do so. The trustee should be properly trained to manage and distribute your assets.
If you are setting up the trust, name yourself as the first beneficiary, or if you are married, yourself and your spouse. The trust needs to spell out who should own your property after you die.
You can set up a revocable trust without putting your assets into it. You can place assets into the trust over the years, or indicate that your property should be placed in the trust after you die.
Who can prepare a revocable trust?
Do-it-yourself kits are available for setting up a revocable trust, but be aware that some are not accurate or complete. If they don't meet your needs, consult an attorney or financial advisor. Be wary of unsolicited offers from businesses offering to set up a living trust for you. Scam artists may make these offers as a way to get your personal financial information.
What a revocable trust may cost
The cost to set up a revocable trust depends on how complex the trust needs to be. If you don't have many assets, your trust will be relatively simple, making it easier and cheaper to create one yourself. You can get trust forms online for less than $50. Attorneys typically charge a percentage of the total value of your assets, making it advisable to hire an attorney only if you need help setting up the trust, or if you have enough assets to easily cover the attorney fees.