Revocable Trusts

What is a Revocable Trust?

A revocable trust is a special document used to manage your assets during your lifetime, and at your death distribute those same assets without going through “probate.” The document is called a “trust agreement,” sometimes called a “declaration of trust.” The parties to the agreement are the “grantor” who creates and funds the trust, the “trustee” who manages the trust, and the “beneficiary.” This type of trust is called revocable because you can do just that, revoke the trust or amend it during your lifetime as long as you are competent. You can be the trustee, or you can appoint an individual, bank, or trust company to be the trustee.

Revocable trusts are popular planning devices because you do not give up control of your assets. You can change the beneficiaries at any time until your death or incapacity. You remain in charge of the investing and can withdraw income and principal as you wish.

Some of the reasons you may want to create a revocable trust are to avoid probate or avoid the appointment of a Guardian for your property if you are incapacitated. The Trustee managing your trust property can be given careful instructions and guidance from you on the investment and distribution of the trust property.

Revocable trusts are also called “will substitutes” because they can and usually do have the same provisions for the distribution of your estate at your death as your will. In fact it is common to combine a will, called a “pour over will” with the trust to make sure your assets are added to the trust at your death and distributed according to your wishes. Relying on a pour over will to add assets to a trust is not recommended. To avoid probate, your assets should be transferred to the trust during your life. This is called “funding” the trust. Not all assets can be transferred to a revocable trust. Consult your attorney or tax advisor before transferring assets to a trust.

The choice of a trustee is critically important. Although the trustee has strict duties under law, they largely administer your trust without court supervision. This reduces costs, but makes abuse of your trust and confidence easy to do. You simply must not appoint anyone to this role that has not demonstrated trustworthiness. It is better to appoint a Bank or Trust Company as trustee if your assets justify the added expense.

Certain trust provisions may not be in a beneficiary’s best interest and can cost them valuable support if receiving Medicaid or other benefits. A revocable trust should be prepared by an attorney with experience in estate planning and trust drafting to protect not only your wishes, but the beneficiaries of your estate.

Authored by Stephen Connelly
Reviewed by Ailish O’Connor