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A revocable trust is a legal arrangement that can be changed or terminated by the creator during their lifetime. It involves a grantor, trustee, and beneficiary, with assets transferred to the trustee to manage according to the grantor’s wishes. After the grantor’s death, the trust becomes irrevocable. While a revocable trust has benefits, it should not replace a will, and there are legal and tax implications to consider. A good estate planning attorney can help determine if a revocable trust is the right choice.
A trust is a legal arrangement that sets out how a person’s assets are to be managed, both during their lifetime and upon their death. A revocable trust is a trust that can be changed or terminated by the person who created it at any point in the life of the creator. It is also called a living revocable trust. There are usually three distinct parties involved in the trust process: the grantor or creator of the trust, the trustee or manager of the trust, and the beneficiary or recipient of the trust assets.
There are two main steps involved in forming a revocable trust. To begin with, an attorney will prepare a trust agreement, trust agreement, or statement of trust. This is a legal document signed by both the grantor and the trustee or manager of the trust. It will state specifically what assets are included in the trust and who is the beneficiary.
Subsequently, the grantor transfers control of the assets covered by the trust to the trustee. For example, the trustee may manage all of the assets that the grantor has in a particular corporate account. Once the assets have been placed in a trust, it is incumbent on the trustee to ensure that the assets are used according to the wishes of the grantor. Furthermore, only the beneficiary can use the assets.
A revocable trust is different from other forms of living trusts because it can be changed or revoked altogether during the life of the grantor. The grantor may have a variety of reasons which he deems worthy enough to revoke the trust. Terms for revoking the trust can include things like marriage, death, divorce, birth of a child, illness, change of residence, disability, or even just because the grantor has changed his mind.
Once the grantor ceases to exist, the trust passes from revocable to irrevocable. This means that no further changes can be made. Furthermore, trust assets can no longer be taken from the beneficiary.
While a revocable trust is an attractive way to control assets, it shouldn’t be used as a substitute for a will. A will should always accompany the trust, addressing any remaining assets that are not included in the trust. There are also some legal considerations that cannot be addressed in a trust, such as who will be a child’s legal guardian upon the death of the child’s parents. Guardianship can only be addressed in a will or under the laws of a particular state or country.
There are some benefits to a revocable trust. The assets in the trust are not included when the probate administration calculates fees for the estate attorney or probate representative. Furthermore, after the death of the grantor, the administration of the trust leaves no paper trail. There are few public documents that reveal the identity of the beneficiary or the amount of assets included in the trust. Any property left to beneficiaries can also be distributed more quickly than assets that have to go through probate administration.
While there are benefits, there is also cause for caution before choosing to place assets in a revocable trust. For example, there are some tax implications. Also, some legal questions remain unanswered by law. For example, in some jurisdictions, it is not clear whether a grantor can disinherit a spouse by transferring all of his or her assets into a trust. Also, in some areas, a divorce will disinherit a spouse from receiving assets allotted to him in a will created prior to the divorce; however, she cannot bar a former spouse from receiving assets transferred to her through a trust. A good estate planning attorney will help clients decide if this is the right type of trust for them.
