Last updated December 13, 2022
What is a Revocable Living Trust?
A Revocable Living Trust is a document that allows you to place assets or property into a trust so they can seamlessly transfer to your beneficiaries after you pass away. Trusts are legal entities that hold assets for beneficiaries to inherit eventually. As its name suggests, you can amend or revoke the terms of a Revocable Living Trust at any time.
A Revocable Living Trust is also known as a:
- Revocable trust
- Revocable grantor trust
- Revocable inter-vivos trust
- Living revocable trust
- Joint revocable trust
What is the purpose of Revocable Living Trusts?
Revocable Living Trusts are valuable tools to use as part of your estate planning process.
If you pass away without a trust or Last Will, your assets will be distributed according to your state's intestate succession laws. If you decide to make a Last Will and Testament as part of your estate plan, your estate will be distributed according to your wishes documented in your Will. This process, known as probate, can take a long time.
A Revocable Living Trust avoids the public probate process, which means that your assets get distributed to your beneficiaries much quicker, usually in a matter of weeks rather than months or years.
A Revocable Living Trust can also serve other purposes, depending on your objective. Like with a Power of Attorney, a Revocable Living Trust can help with incapacity protection. Placing certain assets in a Revocable Living Trust can ensure that a trusted family member or friend, known as your successor trustee, can control the assets if you are incapacitated without needing a court's permission.
Who are the parties involved in a Revocable Living Trust?
A Revocable Living Trust involves the following parties:
Grantor
The grantor is the person who creates and places assets in a Revocable Living Trust. Sometimes, the grantor of a trust may also be referred to as the donor, trustor, or settlor.
When two people create a joint revocable trust, they are co-grantors. Most often, co-grantors are spouses who own and control the trust together.
Trustee
The trustee is the person who controls and manages the assets within the Revocable Living Trust. Most grantors name themselves as the trustee of their Revocable Living Trust so they can retain control of their assets during their lifetime.
Two people can act as co-trustees. For example, if two spouses create a trust, they can name themselves as the trust's co-trustees. In this case, when one spouse dies, the other usually assumes full responsibility for the trust.
As a grantor, if you appoint someone besides yourself as your trustee, they will have the ability to manage the trust's assets. Therefore, you need to take great care in ensuring their trustworthiness and competence.
Successor trustee
The successor trustee is the person who will manage the trust if the primary trustee passes away or becomes incapacitated. Suppose you name yourself as the trustee for your Revocable Living Trust and become incapacitated. In that case, your successor trustee can control the trust's assets without having to involve a court or take further action.
Beneficiary
The beneficiary is the person or entity entitled to benefit from the assets within the trust. You can name individuals, charities, or business entities as beneficiaries.
You can list multiple beneficiaries within a Revocable Living Trust. For example, if you transfer your homeownership to a trust, you can list all your children as the beneficiaries.
How to set up a Revocable Living Trust
To set up a Revocable Living Trust, follow these steps:
- Create a Revocable Living Trust document. Within it, you must name a trustee, list beneficiaries, and list the assets you will place in the trust.
- Sign the document and get it notarized. If you appoint someone other than yourself as the trustee, they must also sign.
- Transfer the ownership of assets into the name of your trust. This process varies depending on the type of asset. You will still have access and control over your assets.
If you become incapacitated, your trustee or successor trustee can manage the trust's assets. Upon your death, your trustee or successor trustee can seamlessly transfer the assets within your trust to your beneficiaries without having to go through the probate process.
Many people that create Revocable Living Trusts also create a Pour-Over Will for themselves. A Pour-Over Will transfers any of your remaining property into the trust when you pass away.
Who owns the property in a Revocable Living Trust?
As the grantor, you still own the property within a Revocable Living Trust. Despite transferring an asset's title to the name of your trust, the asset is still considered part of your property when you use a Revocable Living Trust.
The law still considers you the owner of the property within your Revocable Living Trust because you can change ownership of the property or terminate the trust at any time, and control the trust's contents as trustee. Therefore, you can be taxed for any income your Revocable Living Trust generates during your life.
What assets can I put in a Revocable Living Trust?
Generally, people place assets with high monetary value into Revocable Living Trusts. Some examples include:
- Real estate property
- Securities, such as stock, bonds, or mutual funds
- Investments
- Business interests, such as company shares and partnership interests
- Bank accounts, cash, and notes payable
- Valuable personal property, such as jewelry, artwork, and antiques
Typically, property with low monetary value or assets that need to be insured, like vehicles, are not placed into trusts.
How do I transfer property to or from a Revocable Living Trust?
You need to use a deed to transfer real estate to or from a Revocable Living Trust. Deeds are legal documents that transfer real estate property ownership. Generally, you can use either a Warranty Deed or Quitclaim Deed.
If you are transferring tangible personal property without a title or registration, such as jewelry or furniture, use either a Bill of Sale or Gift Deed.
To transfer a bank account to a Revocable Living Trust, you are best off inquiring with your bank about their process. Each financial institution has its own rules and requirements for transferring a bank account to a trust. Generally, you have to complete a Certificate of Trust as part of the process.
Is a Revocable Living Trust a disregarded entity?
Yes, Revocable Living Trusts are disregarded entities. This means that the IRS does not recognize them as entities separate from their owners. Although your Revocable Living Trust may have taxable income or property in its name, you do not need to file a separate tax return for it. Instead, you include the revocable trust's earnings within your personal tax return.
Can a Revocable Living Trust be changed?
Yes, you can change a Revocable Living Trust at any time up until your passing. Revocable Living Trusts are designed to be adjustable and give you control over your property. If necessary, you can revoke the trust in its entirety.
How can you change a Revocable Living Trust?
You can either use a trust amendment or a trust restatement to change a Revocable Living Trust. With both documents, the original trust remains in effect.
- A trust amendment allows you to change specific provisions in your Revocable Living Trust while leaving all remaining provisions the same. Trust amendments are suitable when making minimal changes.
- A trust restatement remakes an entire Revocable Living Trust without having to revoke it and start over. The original trust remains active, but the provisions of the trust restatement overrule its provisions. Trust restatements are suitable when making significant changes.
Like a Revocable Living Trust itself, you need to get trust amendments and restatements notarized.
Does a revocable trust become irrevocable upon death?
Yes, once a grantor dies, their Revocable Living Trust becomes irrevocable.
Advantages of Revocable Living Trusts
Revocable Living Trusts have numerous benefits, including the following:
1. You can revoke or amend it
Revocable Living Trusts are flexible in nature. Unlike irrevocable ones, revocable trusts allow you to amend them as needed and adapt to life's changes. For example, if you go through a divorce or acquire new assets, you can update the terms of the trust to reflect your new circumstances.
2. Your beneficiaries can avoid probate
By placing assets into a Revocable Living Trust, they can bypass the probate process after your passing. Revocable Living Trusts can ensure a seamless transfer of ownership to your beneficiaries and prevent delays. You do not have to place your entire estate into a trust to avoid the probate process. Instead, you may only consider certain assets, such as a family home.
3. You can plan for incapacity
With a Revocable Living Trust, you can plan for incapacity. If you appoint yourself as the trustee of your trust and name someone else as your successor trustee, you can ensure that they can control the trust's assets if you are incapacitated without having to seek out the approval of a court.
4. You can ensure your privacy
Probate court records are public records. Therefore, when your estate is distributed according to your Last Will, anyone can access the records that detail the distribution of your estate. In contrast, Revocable Living Trusts are not public. Therefore, you can ensure privacy for yourself and your beneficiaries.
Disadvantages of Revocable Living Trusts
1. You have to retitle the property in the trust's name
To include assets in your Revocable Living Trust, you must transfer asset titles to the name of the trust. This process can take time and involve additional costs.
2. You have to be diligent in making amendments
When your financial or family circumstances change, you have to be diligent in amending your Revocable Living Trust to reflect your wishes. Failure to amend your trust could result in complications for your beneficiaries.
3. Your assets are not protected from creditors
Unlike irrevocable trusts, assets in a Revocable Living Trust are not protected from creditors. The assets within your Revocable Living Trust are considered your property and could be claimed by creditors.
Does a Revocable Living Trust need to be notarized?
Most states require Revocable Living Trusts to be notarized. If your state requires your Living Trust to be notarized, our questionnaire will automatically include a section at the bottom of your document for notarization. You can also notarize your Revocable Living Trust using an online notary.