Revocable Trusts can offer professional asset management and avoidance of probate, while you retain full control over the assets.
Revocable Trusts, also called Living Trusts, can be used for better management and control of assets during life and at death. Because the trusts are revocable, the grantor is not committed to the trust if the situation changes.
Mechanics of Revocable Trusts
The grantor creates a revocable trust, names the trustee and the beneficiaries, and contributes property to the trust. The grantor or a third party can act as the trustee. Property can be added or removed from the trust at any time, and the terms of the trust can be amended or the trust can be terminated at any time by the grantor. Upon the grantor’s death, the trust becomes irrevocable and trust assets are transferred to trust beneficiaries as defined in the trust document.
Because the grantor can revoke the trust, trust assets are included in the grantor’s gross estate for estate tax purposes. Also, all income and deductions attributable to the trust property flow back to the grantor. On the other hand, retained control means that contributing assets to the trust will not trigger gift tax. However, a gift will occur if the grantor gives up power to revoke or amend the trust.
Advantages of Revocable Trusts
There are no estate or income tax advantages gained by establishing a revocable trust. However, there can be some real financial and administrative advantages, including:
- Avoiding the time and expense of probate – Probate can take several months or years.
- Avoiding probate in multiple states – Revocable trusts can be used to hold assets in multiple states and avoid probate in multiple places.
- Privacy – Probate proceedings are public record while trusts are not.
- Relief from financial responsibility – A professional trustee likely has asset management skills and tools that the grantor does not possess.
Revocable – If grantor is unhappy, the assets can be removed from trust.