NASE Blogs

What is a Revocable Living Trust?

Wednesday, March 23, 2011

A revocable living trust is a trust created and effective during the life of its creator, who, by the trust language, determines how assets placed in the trust will be managed while he or she is alive, and to whom the assets will pass when he or she dies.

Because it is revocable, the terms of the trust can be changed until its creator dies or becomes legally incompetent. The principal reason most individuals use a living trust is to avoid probate. After its creator’s death, a living trust can also dictate how the trustee should use trust assets for the benefit of the heirs.

Although a living trust avoids probate, that’s only true with respect to assets that are in the trust. A trust creator may accidentally or intentionally leave some assets out of the trust. For that reason, a living trust should be accompanied by a pour-over will to distribute assets not included in the trust.

A pour-over will requires probate. You can’t avoid probate unless the living will contains all of your assets. The living trust or the pour-over will should also name guardians if the grantor has minor children.

The principal disadvantages of a living trust are the costs of establishing and administering the trust, including filing trust tax returns in some cases. It can also be more difficult to manage one’s personal affairs if most assets are in the living trust.

 

Many people believe that placing assets in a revocable living trust will allow them to escape death taxes.  This is not true since taxing authorities view the assets in such a trust to belong to the trust creator.

 

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