You have worked hard to acquire what you have and leave something behind for those you love – and good estate planning is crucial for ensuring that your assets are managed and distributed according to your wishes.
One powerful tool for effective estate planning is the revocable trust. A revocable trust, often referred to as a “living” trust, is a legal entity created by an individual, known as the grantor, to hold and manage their assets during their lifetime.
Unlike an irrevocable trust which cannot be altered once it is made without some difficulty, a revocable trust allows the grantor to retain control over their assets and make changes to the trust’s terms throughout their lifetime. They can even revoke the trust entirely if they wish.
What happens to the revocable trust after you die?
Upon the grantor’s death, a revocable trust undergoes a transition. It immediately becomes irrevocable upon your death. That means that the successor trustee you named will automatically take control of your trust. Once any debts that must be addressed have been paid, the assets will be distributed according to the terms you laid down when you either established or last updated your trust.
Should you consider a revocable trust?
Irrevocable trusts are often established to benefit a child with special needs or provide for a grandchild’s education – but most people do not want to lock the majority of their assets up in an irrevocable trust while they’re still alive. Revocable trusts lack some of the advantages of irrevocable trusts, such as asset protection, but they do have their uses, such as:
- Probate avoidance: One of the primary benefits of a revocable trust is that it enables the seamless transfer of assets to beneficiaries without the need for probate. By placing your assets in a revocable trust, those assets can bypass probate, allowing for a quicker and more private distribution of assets to your beneficiaries.
- Incapacity planning: Revocable trusts are valuable tools for planning for incapacity. If you ever become unable to manage your affairs due to illness or disability, the successor trustee that you named in the trust document can step in and manage the trust assets on your behalf, ensuring a smooth transition without the need for court intervention. This can actually be superior to powers of attorney designations since those are not always recognized by every financial institution.
- Privacy and flexibility: Unlike a will, which becomes a public record during probate, a revocable trust allows for a more private distribution of your assets. Additionally, the trust can be amended or revoked at any time, offering the grantor flexibility to adapt the trust to changing circumstances or preferences. They are also less vulnerable to challenges by disgruntled heirs.
In summary, a revocable trust is a powerful estate planning tool that offers flexibility, privacy, and the ability to avoid probate – but it is far from the only tool available. Once you understand the benefits and implications of a revocable trust you will be able to make informed decisions about your estate plans.
