What Constitutes a Revocable Trust?
Revocable living trusts are a popular tool for keeping property out of probate. If you place your accounts, investments or real estate in a living trust and name yourself as the trustee, you can continue to control, use and spend your assets as before. At your death, the trust contents will go to your beneficiary.
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Types
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Trusts can be revocable or irrevocable. If you create a revocable trust, you still own the contents, and until your death, you have the legal right to transfer property back into your name, or dissolve the trust completely. If you place assets in an irrevocable trust, the trust is the legal owner. You can't reclaim your property or dissolve the trust, and someone else will have to serve as the trustee.
Features
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The documents creating a revocable trust spell out how you want your money handled in the event of your death, or if you become incapacitated.The secondary trustee is obligated to manage the trust in accordance with your wishes and transfer the assets to your beneficiaries after your death. You not only dictate who gets what but when. If your heir is disabled, for instance,you can set up the trust to take care of his needs and manage the money for him.
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Benefits
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If you avoid probate by giving your property to your children while you're alive, you lose control of it. You can also be liable for gift taxes on the amounts you give away. There's no risk of that with a revocable trust. If you're incapacitated, the rules you drew up when you created the trust can dictate exactly how the trust's money is spent, according to the Kiplinger financial website, right down to which nursing home you want to stay in.
Misconceptions
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Putting assets into a revocable trust will not protect them from estate tax, the Nolo legal website states -- though some more complicated forms of trust will do that -- and it won't protect them from your creditors after you die, either. It's also a mistake to assume a living trust means you don't need a will. If you acquire property and die without transferring it to the trust, a will is the only way to make your wishes for the property known.
Alternatives
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Some states, such as Maryland, have simplified the probate process, Findlaw states, so that putting property into a trust isn't usually necessary. It's also possible to set up a financial power of attorney, authorizing someone to manage your affairs if you're incapacitated, so that you don't need a trust for that. Many financial institutions, however, prefer dealing with a trustee to someone holding a power of attorney, so talk to your banker and brokerage about their policies.
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