Perhaps you’ve heard the term “revocable living trust." Its ever-increasing popularity has made it a frequent topic of conversation among tax and estate planners. As daunting and complicated as the term may sound, the process of creating a revocable living trust is actually relatively simple. This type of trust allows you to transfer ownership of your assets to the trust while still giving you the right to possession and use of your assets. These trusts enable you to ensure your estate does not pass through probate upon your death. This sounds crazy right—transfer ownership of all of your property into a trust while you are still alive? Read on to find out why these trusts are so popular.
Also referred to as a grantor trust, this instrument allows you to place your property into a trust while you are still living. The trust begins to exist once it is properly created, generally through a Declaration of Trust, which includes naming a trustee and beneficiary, and transferring property into the trust. One important feature is the ability to name you as both trustee, the one who administers and oversees the trust, and beneficiary of the trust. This flexibility ensures you can manage the trust, transferring property in and out, as well as continue to possess and use your property as beneficiary. You are in charge of drafting the Declaration of Trust, and you have complete control over the administration of the trust.
Once your property is transferred to the trust, the trust holds title to the property. The property is in the name of the trust, to be used for the benefit of the designated beneficiary, you. And since only property held your name at the time of your death passes through probate, the property held in the name of the trust will pass outside probate. When you draft the trust you name successor beneficiaries—people to take your assets after you’re gone. The probate process can be slow, time-consuming and expensive, so it’s often desirable to avoid probate altogether through instruments such as revocable living trusts.
Hopefully I didn’t lose you yet because here’s one of the most important characteristics: these trusts are fully revocable during your lifetime. The person who creates the trust can revoke or modify it at anytime. The trust only becomes irrevocable at the time of your death. Again, this allows you to have complete control over the trust and its administration during your lifetime. In addition, it ensures that the trust will be carried out according to your wishes after your death, since it becomes irrevocable, and generally unamendable.
The bottom line is that revocable living trusts are simple to create, flexible to administer, and offer an attractive tax and estate planning alternative to wills. You can maintain possession and use of your property while ensuring your estate avoids probate and is distributed according to your wishes.