Only rich people need revocable trusts, right? Wrong. Anyone with property that they want to pass on to the next generation could benefit from this type of trust. In order to make an informed decision, you need to understand what this trust entails, along with what it does for you.
What is a revocable trust?
Also called a revocable living trust, you, as the grantor (creator) of the trust, transfer your assets into it and receive distributions from it during your lifetime. You can change the provisions of the trust or revoke it at any time during your life. Upon your death, the trust becomes irrevocable, which means no further changes can be made.
You serve as the trustee of the trust during your lifetime if you choose to do so. The alternate trustee takes over the administration of the trust on behalf of the beneficiaries you designate to receive distributions once you pass away. The assets remain subject to estate taxes.
What advantages and disadvantages does a revocable trust provide?
You receive the following advantages from a revocable living trust:
- Add or subtract assets as needed
- Change beneficiaries
- Assets avoid probate (even those in another state)
- Protects incapacitated beneficiaries
- Holds property for minors
- Controls distributions
- Saves money on probate
- Tailored to your needs and wishes
Watch out for the following disadvantages during your lifetime:
- Failing to transfer assets into the trust
- Periodic reviews
- Up-front costs
- Subject to estate and other taxes
- Reachable by creditors
- Still need a will
Some of the disadvantages are really just inconveniences that should not detract from the advantages. In order to take full advantage of the pros and limit the disadvantages of a revocable living trust, enlisting the help of an attorney might be beneficial. For this reason, you should not attempt to create a trust on your own.
In fact, consulting an attorney regarding all aspects of your estate plan helps prevent any errors that often make the probate process more difficult on surviving family members. Furthermore, if you fail to plan for your demise, probate litigation among your heirs and beneficiaries could deplete your estate.