Revocable Trusts: Common Questions and Answers
Who Needs a Revocable ("Rev" or Living) Trust?
Anyone who wants privacy, continuity of financial affairs and to avoid probate should consider establishing a revocable trust. Probate is expensive and takes a long time — it may tie up assets for months or even years after the person passes. It is a public proceeding where the decedent’s assets and heirs will become part of the public record. Today that includes the Internet.
People with property in more than one state will have to go through probate court in every state where property is located. A revocable trust, also called a living trust, is a very simple way to bypass this and ensure continuity in the management of financial affairs at one’s death.
What Is a Revocable Trust?
It is a legal entity—a trust— that represents your wishes. One way to think of it is as a service provider that holds the assets you give it and follows your instructions during life, and then distributes the remaining assets to your heirs according to your wishes at death with no intervention from anyone including probate court. A revocable trust can be changed or revoked at any time during your life. At your death the trust becomes irrevocable, and it serves as the “will” for all assets that are titled into the trust.
In trust terminology, the person creating the revocable trust is the grantor, the person making the decisions for the trust is the trustee, and the person who benefits from trust assets is the beneficiary. With a revocable trust, the grantor holds all three roles during life. At death, a successor trustee takes over, normally a spouse or relative, and the beneficiaries you named receive the distributions in the manner you stipulated.
During life, all income from revocable trust assets is taxed to you, the grantor. That makes revocable trusts tax neutral – no tax benefits or disadvantages as compared with individual ownership of an asset. You don’t need a separate tax ID as you file your return under your name and social security number as usual.