What is a Revocable Living Trust?

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One of the most common questions in estate planning is, “Do I need a Revocable Living Trust?” Once considered a tool exclusively for the wealthy, trusts are now a valuable and accessible option for many families seeking greater control and protection for their assets.

The Three Key Roles in a Trust

At its heart, a Revocable Living Trust is a legal agreement involving three essential parties:

  • The Grantor: The person who creates the trust and transfers their assets into it.
  • The Trustee: The person or institution responsible for managing the trust’s assets according to its rules.
  • The Beneficiary: The person or people who benefit from the trust’s assets.

Initially, it is very common for the Grantor, Trustee, and Beneficiary to all be the same person. This allows you to maintain complete control over your assets just as you did before the trust was created.

The Power of “Revocable”

The primary feature of this type of trust is that it is revocable. During your lifetime, you can change it, amend it, or even cancel it entirely as your life circumstances change. However, upon the Grantor’s death, the trust becomes irrevocable. While the core instructions can no longer be changed, a well-drafted trust often includes provisions that provide continued flexibility, such as allowing a beneficiary to change a future trustee or naming a Trust Protector who can make administrative changes to adapt to new laws without the expense of going to court.

Key Benefits of a Revocable Living Trust

A properly funded Revocable Living Trust offers numerous advantages that a simple will cannot provide:

  • Avoids Probate: Assets held in the trust pass directly to your beneficiaries, avoiding the time, expense, and public nature of the court’s probate process.
  • Provides for Disability: The trust includes a detailed plan for how your assets should be managed for your benefit if you become incapacitated, ensuring your care and standard of living are maintained according to your wishes.
  • Offers Privacy: Unlike a will, which becomes a public court record, a trust is a private document, keeping your family’s financial affairs confidential.
  • Protects Beneficiaries: A trust can be structured to protect the inheritance you leave to your loved ones from their future creditors, lawsuits, or a divorce.

Important Considerations: Funding and Potential Downsides

A trust is only effective if it is properly “funded”—meaning your assets have been legally transferred into it. An unfunded trust is one of the most common and critical mistakes in estate planning, as it undermines the primary goal of avoiding probate.

It’s also important to understand the implications of a trust. Transferring assets into a trust can trigger a penalty period if you need to apply for Medicaid within the 5-year look-back period. Additionally, after the Grantor’s death, the trust becomes a separate taxable entity, and undistributed income can be taxed at a much higher rate than individual income.

Is a Trust Right for Your Estate Plan?

A well-drafted Revocable Living Trust offers unparalleled control and protection for you and your family. It allows you to appoint who will manage your affairs when you cannot and provides a detailed roadmap for your legacy.

If you would like to explore how a trust could fit into your overall estate planning, our attorneys can help. Call our office at (919) 256-7000 to schedule a consultation.