A revocable living trust, sometimes simply called a living trust, is a legal entity created to hold ownership of an individuals or couple’s assets. The person who forms the trust is called the grantor or trust maker. In most cases this person also serves as the Trustee, who controls and manages the assets that they put in the trust.
If set up correctly, a revocable living trust can take care of just about everything for you, both while you are alive and after your death. A revocable living trust avoids probate, one of its many benefits.
The trust maker has the right to undo a revocable trust. He or she can reclaim the assets placed into the trust, divert the trust’s income to himself or herself, or another beneficiary, sell the assets or put more assets into the trust. The trustee maintains control of all the assets and has the ability to make any changes to the trust that they want.
The top Ten Reasons to establish a Revocable Living Trust:
- Probate avoidance. The assets of the trust immediately transfer to the beneficiaries upon your death saving tremendous amounts of time and large sums of money in probate legal fees.
- Asset protection for your children or beneficiaries.
- Better control over downstream or contingent beneficiaries.
- The ability to list your revocable trust as a contingent beneficiary on your retirement accounts.
- Asset protection for the surviving spouse or partner.
- Divorce/remarriage protection for the first spouse or partner.
- Remote contingent beneficiary planning.
- The ability to nominate a trustee to privately take care of your financial affairs in the event of your incapacity.
- The ability to funnel your life insurance into a protected continuing trust for your children or other beneficiaries.
- Estate tax savings for both spouses / partners through A/B trust provisions.
Revocable means that once you set up the trust, you can change it at any time you want and however you want. You as the trustee are always in control of it.
Living means that it works for you while you are alive, unlike a will, which only comes into effect when you die. All the terms and conditions that you have created in your trust will also continue to apply after you have died.
The term Trust is simply the name of the document.
The Grantor is the person who sets up the trust and puts the assets into it.
The Trustee is the person or persons who have signing authority over all the assets in the trust. The trustee decides everything that happens with the money and assets in the trust. There can be a single Trustee, or there can be joint trustees.
Successor Trustee is the person or persons who takes over the management and control of the trust when the trustee dies or is no longer capable of making decisions.
Beneficiary is the person or persons who will benefit from the trust and the assets.
Remainder Beneficiary is the person or persons who inherits the assets in the trust when you die. In your trust, you can have multiple remainder beneficiaries such as all your children and you may leave specific assets to specific people.
A revocable trust automatically becomes irrevocable when the trust maker dies because he or she can no longer make changes to it. The trust acts as a will at this point. The Successor Trustee then steps in to manage and control the assets.
The Successor trustee pays the final bills, debts and taxes of the trust. Then the remaining assets are distributed to the beneficiaries according to the instructions included in the trusts formation documents.