What Is a Revocable Living Trust and How Does It Work?

A revocable living trust is a powerful estate planning tool that helps individuals manage their assets during their lifetime and distribute them efficiently after their passing. Unlike a will, a living trust allows assets to be transferred to beneficiaries without going through probate, making the process faster and more private. 

This guide will explain what a revocable living trust is, how it works, and why consulting a living trust attorney can be beneficial.

What Is a Revocable Living Trust?

A revocable living trust is a legal document that allows a person (the grantor) to place assets into a trust while maintaining control over them during their lifetime. The trust is called "revocable" because the grantor can modify or cancel it at any time.

Upon the grantor’s passing, the trust assets are distributed to beneficiaries according to the grantor’s wishes, bypassing the probate process. This can save time and money while ensuring privacy for the family.

How Does a Revocable Living Trust Work?

A revocable living trust works in several stages:

1. Creating the Trust

To establish a revocable living trust, the grantor works with a trust attorney to draft a trust agreement. This document outlines:

• The grantor’s assets included in the trust.
• The beneficiaries who will inherit the assets.
• The trustee who will manage the trust.

The grantor usually names themselves as the trustee so they can manage their assets while they are alive. They also appoint a successor trustee to take over when they pass away or become incapacitated.

2. Funding the Trust

After the trust agreement is created, the grantor transfers ownership of assets into the trust. Common assets placed in a living trust include:



• Real estate
• Bank accounts
• Investment accounts
• Stocks and bonds
• Personal property (such as jewelry or valuable collectibles)

Since the grantor remains in control of the assets, they can buy, sell, or remove items from the trust at any time.

3. Managing the Trust During Life

While the grantor is alive and mentally capable, they continue to manage their assets just as they did before. If they become incapacitated, the successor trustee steps in to handle the trust’s affairs, avoiding the need for court-appointed guardianship.

4. Distributing Assets After Death

When the grantor passes away, the successor trustee:

• Pays any outstanding debts or taxes.
• Distributes the remaining assets to beneficiaries as stated in the trust document.
• Ensures a smooth and private transfer of wealth without probate court involvement.



It's important to note that the trust becomes irrevocable upon the grantor's death, meaning its terms can no longer be changed.

Benefits of a Revocable Living Trust

A revocable living trust offers several advantages over a traditional will:

1. Avoids Probate

One of the biggest benefits is that assets in a living trust do not go through probate. Probate is a lengthy and costly legal process where a court oversees the distribution of an estate. Since a revocable living trust transfers assets directly to beneficiaries, it saves time and keeps financial matters private.

2. Provides Flexibility

Because it is revocable, the grantor can make changes at any time. This means they can add or remove assets, change beneficiaries, or even revoke the trust altogether if their circumstances change.

3. Ensures Continuity in Case of Incapacity

If the grantor becomes unable to manage their finances due to illness or injury, the successor trustee can step in and manage the assets. This prevents the need for a court-appointed guardian and ensures financial matters are handled smoothly.

4. Maintains Privacy

A will becomes public record after death, meaning anyone can access details about the estate. A living trust remains private, protecting sensitive financial information.

5. Reduces Family Conflict

Since the terms of the trust are clearly outlined, there is less room for disputes among heirs. A properly drafted trust can help avoid family disagreements over inheritance.

Common Misconceptions About Revocable Living Trusts

Despite their benefits, there are some misunderstandings about revocable living trusts:

1. A Living Trust Eliminates All Taxes

While a living trust helps avoid probate, it does not eliminate estate or income taxes. However, an experienced trust attorney can incorporate strategies to minimize tax liability.

2. You Lose Control Over Your Assets

Many people believe that once they place assets in a trust, they no longer control them. This is not true. The grantor, as the trustee, maintains full control and can modify the trust at any time.

3. A Living Trust Replaces a Will

While a living trust is a powerful estate planning tool, it does not completely replace a will. A will is still needed to handle any assets not included in the trust and to name guardians for minor children.

4. A Living Trust Protects Assets from Creditors

While a living trust offers many benefits, it does not provide asset protection from creditors during the grantor's lifetime. Assets within the trust are still generally accessible to creditors.

When Should You Consider a Revocable Living Trust?

Not everyone needs a living trust, but it may be beneficial if you:

• Own real estate in multiple states.
• Have significant assets that you want to transfer efficiently.
• Want to avoid probate and keep your estate matters private.
• Have a complex family situation, such as children from multiple marriages.
• Are concerned about potential incapacity and want a successor trustee to step in if needed.

If any of these situations apply to you, speaking with a living trust attorney can help you determine whether a trust is right for your estate plan.

How to Set Up a Revocable Living Trust

If you decide that a revocable living trust is right for you, follow these steps

1. Work with a Trust Attorney

An experienced   trust attorney will draft the trust document and ensure it meets legal requirements. They can also help you determine the best way to structure the trust based on your financial goals. Laws governing trusts can vary significantly by state, so it's crucial to consult with an attorney familiar with the laws in your jurisdiction.

2. Transfer Assets into the Trust

To make the trust effective, assets must be legally transferred into it. This may involve:

• Changing the title of real estate properties.
• Updating beneficiary designations on accounts.
• Transferring ownership of stocks, bonds, and other investments.

3. Choose a Successor Trustee

Select a reliable and responsible person to manage the trust after your passing. This could be a family member, close friend, or professional trustee.

4. Review and Update the Trust

As life circumstances change, you may need to update your trust. Regularly reviewing the trust ensures that it continues to reflect your wishes.

Conclusion

A revocable living trust is a valuable tool for estate planning, offering benefits such as avoiding probate, maintaining privacy, and ensuring a smooth transfer of assets. While it does not replace a will, it provides greater flexibility and control over your estate.

To determine if a living trust is right for you, consult a knowledgeable living trust attorney who can guide you through the process and help protect your assets for future generations.

Ready to secure your future? Contact an Doane & Doane experienced trust attorney today to set up your revocable living trust!