When it comes to estate planning, there seems to be three groups of people. The first group includes all those people who have no estate plan in place. Unfortunately, they represent a majority of American adults right now. The second group includes those whose estate plan is focused on a simple will and perhaps a power of attorney or advance directive for health care. The third group – and by far the smallest – consists of those Americans who have an estate plan that includes some type of living trust. Sadly, if more people knew more about revocable trusts, that third group would almost certainly be much larger than it is today. So, what is a revocable trust, and what advantages can it offer for your estate plan? Let’s examine that question in more detail.
What is a Revocable Trust?
A revocable trust is a type of trust that can be completely revoked or altered by the person who made it any time prior to death. That makes it different from the irrevocable trust, which cannot be changed or cancelled once they are created. Revocable trusts are often referred to as “living trusts” – though irrevocable trusts can be living trusts as well. The term living trust refers to the fact that these trusts are in effect while the grantor is still alive, as opposed to testamentary trusts which are created by the Last Will and Testament and only become active when the will-maker passes away.
A revocable trust includes the basic elements necessary for any trust:
- A grantor. Also referred to as the settlor, the grantor is the person who creates the trust – usually with the assistance of an attorney. As the trust’s creator, the grantor has the ability to make alterations to his trust at any point in his life, or to revoke it if necessary.
- The Trustee. Many grantors serve as their own trustee while they’re alive, but even they need to name a successor trustee to take over management and control of the trust when they die. The trustee has an affirmative duty to obey the terms of the trust and manage assets for the benefit of any named beneficiaries.
- The beneficiaries. If there are no beneficiaries, then there is no trust. At its core, a trust is a legal agreement in which one party holds the assets of another so that those assets can benefit a third-party beneficiary. The beneficiaries are the recipients for whose benefit the trust is designed and managed.
How Does a Revocable Trust Work?
Once you’ve created the trust and named both the successor trustee and beneficiaries, you fund it with your assets. You can use virtually any assets in your possession to fund your trust, including vehicles, bank accounts, stocks and bonds, and real estate. Those assets are then managed by the trustee, who is charged with protecting them and, in many instances, increasing their value through sound investments. When the grantor dies, the trust acts as a will as the trustee distributes assets to the named beneficiaries in accordance with the trust terms.
What are the Advantages of a Revocable Trust?
A revocable trust can offer a host of advantages for those who use it – and most of those advantages are things that simply cannot be realized when your estate plan’s foundation is built upon nothing more than a Last Will and Testament. For example, the revocable trust can offer advantages like:
- Probate Avoidance. For many grantors, the desire to help their loved ones avoid the probate process is a powerful incentive. Since the assets in a trust are distributed in accordance with its terms, there is no need for probate to sort out their dispensation.
- Privacy protection. Wills must be probated, and that means the involvement of a public court process. With a trust, you can keep your estate business private, since no court is needed to implement its terms.
- Easier access to estate assets when you die. Probate can take many months or even years, and heirs often need to wait for it to be completed before they can receive their inheritance. A trust can help to minimize those delays, enabling dependent heirs to receive the support they need in much less time.
- Continuity of investment strategies. With a trust, your assets can continue to be managed in accordance with the investment strategies you’ve established. That can help to minimize any disruption in their ability to grow in value.
- Guarantees management and preservation of estate assets in disability. You can use the terms of a trust to ensure that its assets have someone to manage them if you’re rendered incapacitated. That can help to ensure that your assets are used for your family’s benefit during a disability, and can avoid some of the third-party confusion that sometimes occurs even with durable powers of attorney.
- Control of assets both during life and afterwards. Because you can name yourself as the initial trustee, you still retain control over your assets and can benefit from their use while you’re still alive. That can be an important benefit for those who are reluctant to use estate planning tools that require them to give up total control over their assets, as is required when you use irrevocable trusts to accomplish certain estate planning goals.
Is a Revocable Trust Right for Your Estate Needs?
When it comes to estate planning, there are few tools that offer greater flexibility than the revocable trust. Of course, the decision about whether a revocable trust can benefit your estate plan will ultimately come down to the type of assets you have and what you need to accomplish with your plan. That’s where the trust experts at Frank & Kraft, Attorneys at Law come in. Our experienced team can help you make sense of your current situation and assist you as you try to determine the best possible options to protect your interests and your legacy. If you’d like to know more about how a revocable trust can help you meet your estate planning challenges, call today at (317) 684-1100, or contact us at our website.