What is a Revocable Trust
A revocable trust is a trust whereby provisions can be altered or canceled dependent on the grantor. During the life of the trust, income earned is distributed to the grantor, and only after death does property transfer to the beneficiaries. This type of agreement provides flexibility and income to the living grantor; he is able to adjust the provisions of the trust and earn income, all the while knowing that the estate will be transferred upon death.
BREAKING DOWN Revocable Trust
A revocable trust is a part of estate planning that manages and protects assets as the grantor, or owner, ages. The trust is amended or revoked as the grantor desires and is included in estate taxes. Depending on the trust’s directions, the trustee, or holder of the assets, distributes the assets to the beneficiaries or holds and manages the property. The trust remains private and becomes irrevocable upon the grantor’s death.
Characteristics of a Revocable Trust
The money or property held by the trustee for the benefit of someone else is the principal of the trust. The principal changes often due to the trustee’s expenses or the investment’s appreciation or depreciation. The collective assets comprise the trust fund. The person or people benefiting from the trust are the beneficiaries. Because a revocable trust lists one or more beneficiaries, the trust avoids probate.
Advantages of a Revocable Trust
If the grantor experiences health concerns through the aging process, a revocable trust allows the grantor’s chosen manager to take control of the principal. If the grantor owns real estate outside his state of domicile and the real estate is included in the trust, an ancillary probate of the real estate is avoided.
If a beneficiary is not of legal age and cannot hold property in his name, the minor’s assets are held in the trust rather than having the court appoint a guardian. If the grantor believes a beneficiary will not use the assets wisely, the trust allows a set amount of money to be distributed on a regular basis.
Disadvantages of a Revocable Trust
Implementing a revocable trust involves much time and effort. Assets must be retitled in the name of the trust to avoid probate. The grantor’s entire estate plan must be monitored annually to ensure the trust’s objectives are being met. Costs of maintaining a revocable trust are greater than other estate planning tools such as a will. A revocable trust does not offer the grantor tax advantages. Since not all assets will be included in the revocable trust, the grantor must create a will to designate beneficiaries for the remaining assets, to avoid probate. During the grantor’s lifetime, creditors can still reach the property in a revocable trust.