All About Revocable Trusts

When it comes to estate planning, a revocable trust is one of the most versatile and beneficial tools you can use. This article will define what a revocable trust is, explain how it works, and discuss its many benefits, including the significant advantage of avoiding probate.

What is a Revocable Trust?

A revocable trust, also known as a living trust, is essentially a legally binding contract that you enter into with yourself, as the initial Trustee, in which you appoint an individual to run point for your family upon your death, known as the successor Trustee, and specify how you want assets to be distributed upon your death. As the name suggests, a revocable trust can be altered, amended, or revoked entirely at any time by you (the “grantor”—the person who creates the trust), provided you are alive and mentally competent. During your lifetime the revocable trust is treated as you, using your social security number, and does not requiring any changes to your income tax returns or filing requirements. The revocable trust will become irrevocable upon your death.

How Does a Revocable Trust Work?

1. Creation: The grantor creates the trust and transfers assets into it. This can include real estate, bank accounts, investments, and personal property. Assets can either be transferred into your name as trustee of the trust during your lifetime OR assets can be designated to the trust upon your death through beneficiary designations on your various assets and accounts. NOTE: Where possible, the latter approach is my preference.
2. Management: The grantor typically serves as the trustee, managing the trust assets during their lifetime. They retain full control over the assets and can use them as they see fit.
3. Beneficiaries: The trust document names the beneficiaries who will receive the assets upon the grantor’s death. The grantor can specify conditions for distribution, such as age requirements or usage restrictions.
4. Successor Trustee: The trust names a successor trustee who will manage and distribute the trust assets in accordance with the express terms of the trust upon the grantor’s death.

Benefits of a Revocable Trust

Avoidance of Probate

One of the most significant advantages of a revocable trust is the avoidance of probate. Probate is the court-supervised process of distributing a deceased person’s estate. Most states, including Ohio, require that an attorney must be hired to open and administer a probate estate. While probate is not a bad process in and of itself, even a simple probate estate can cost at least $5,000 in legal fees, not to mention the time and public exposure involved. By transferring assets into a revocable trust, these assets bypass the probate process, allowing for a more private, efficient, and cost-effective transfer of your assets to your beneficiaries.

Flexibility and Control

A revocable trust provides the grantor with flexibility and control over their assets. The grantor can change the trust terms, add or remove assets, and modify beneficiary designations as their circumstances or wishes change. By designating the trust as a beneficiary on your various assets and accounts, you can make major changes to your overall estate plan by amending one document (i.e., your revocable trust), without the need on every change to go back and update the beneficiary designation on each and every account. In other words, the trust becomes the master document for how your estate will be distributed upon your death, with the successor trustee running point for your loved ones in carrying out your stated desires.

Privacy

Unlike a will, which becomes a public record during probate, a revocable trust remains a private document. This means the details of your estate, including the nature and value of your assets and the identity of your beneficiaries, are kept confidential.

Streamlined Estate Administration

A revocable trust can simplify the administration of your estate, especially if you own property in multiple states. Without a trust, each state where you own property might require a separate probate proceeding. A revocable trust consolidates these assets, allowing for more efficient management and distribution. For large families or for individuals with many beneficiaries (individuals and/or charities), appointing an individual to run point for all beneficiaries (i.e., your successor trustee), streamlines the liquidation of assets and can significantly expedite the distribution process.

Conclusion

A revocable trust is a powerful estate planning tool that offers numerous benefits, including probate avoidance, flexibility, incapacity planning, privacy, and streamlined estate administration. By understanding how a revocable trust works and leveraging its advantages, you can ensure that your assets are managed according to your wishes and transferred to your beneficiaries with minimal hassle and expense. Consult with an estate planning attorney to determine if a revocable trust is the right solution for your needs.