Revocable Living Trust

Who can use a Revocable Living Trust?

A Revocable Living Trust can be used by many different types of people as part of an estate plan. A trust is not limited to wealthy individuals or people with large estates. Depending on the person's circumstances, a trust may be useful for someone who owns a home, has investment or bank accounts, has children, wants to provide for family members, or simply wants to establish a plan for managing property during life and after death. Whether a trust is appropriate depends on the individual's property, family situation, state law, and estate-planning goals.

Why do people like using a living trust?

One reason people choose a Revocable Living Trust is that it can provide a structure for managing property during the creator's lifetime. The person who creates the trust, often called the grantor or settlor, can generally serve as the initial trustee and continue to manage trust property. The trust can also name a successor trustee who may take over management if the original trustee becomes unable to manage the trust or after the original trustee's death. This can provide a framework for continuity of property management.

Another commonly discussed benefit is the potential to avoid probate for property that has been properly transferred to the trust. Probate is a court-supervised process that may be required to administer certain property after someone dies. Assets owned by a properly funded living trust may, depending on the circumstances and applicable state law, be administered through the trust instead of passing through probate. A trust does not automatically accomplish this simply because the document exists; property generally needs to be properly transferred or otherwise coordinated with the trust.

What is the advantage of a trust over a Will?

A Will and a Revocable Living Trust serve different purposes and can work together as part of an estate plan. A Will generally provides instructions for the distribution of property at death and may nominate an executor or personal representative. A Revocable Living Trust can provide instructions for managing property during the creator's lifetime and after death, with a successor trustee administering trust property according to the trust's instructions.

One potential difference is how property is administered after death. Property that passes through a Will may be subject to probate, depending on state law and the type of property involved. Property that has been properly transferred to a living trust may be administered by the successor trustee without going through the same probate process. A trust can also provide instructions for distributing property over time rather than requiring everything to be distributed immediately. However, a living trust generally does not eliminate every probate issue or replace every other estate-planning document.

Do only wealthy people use trusts?

No. Trusts are sometimes associated with wealthy families and complex estates, but a Revocable Living Trust can be used by people with more ordinary estates as well. Someone who owns a home and has savings, investments, personal property, or other assets may consider a trust depending on their goals and circumstances. The potential benefits of a trust are not necessarily tied to having a particular level of wealth. The costs, administrative requirements, and benefits should be considered before deciding whether a trust makes sense for a particular estate.

What is the difference between a revocable and irrevocable trust?

A Revocable Living Trust generally allows the person who created the trust to retain significant control over the trust during their lifetime. Subject to the terms of the trust and applicable law, the creator can generally amend or revoke the trust and change beneficiaries or other provisions. Because the creator retains substantial control, a revocable trust is generally used primarily for estate planning, property management, and related purposes rather than as a simple way to remove assets from the creator's ownership for every legal or tax purpose.

An irrevocable trust is generally structured so that the person who creates it gives up some or all of the ability to change or revoke the trust. The specific legal and tax consequences depend heavily on how the trust is drafted, who controls it, what property is transferred, and the applicable law. Irrevocable trusts can be used for certain estate-planning, asset-management, tax, and other purposes, but they are substantially different from a standard Revocable Living Trust and may require specialized legal advice.