Revocable Trust Explained
A revocable trust is a legal instrument created by an individual known as the "settlor." Each jurisdiction has its own legal requirements to create a trust; those contemplating trust creation should consult a lawyer.
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Structure of Trust
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The settlor releases all control of his assets once he transfers them into the trust. He appoints a beneficiary, who has the right to certain profits and distributions from the trust. He also appoints another individual as a trustee, who has the responsibility to manage and administer the assets for the beneficiary's benefit.
Revocability
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Creation of a revocable trust allows the settlor to revoke or modify the trust at any time before her death. An irrevocable trust is much more difficult to revoke. In most jurisdictions, a court will consider a trust irrevocable unless the trust document clearly states the settlor's intent to keep it revocable.
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Purpose
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There are several uses for a revocable trust. Some parties place assets in a revocable trust in order to insulate those assets from the demands of creditors. Other parties use it to plan for incapacity. Because a revocable trust becomes irrevocable upon death, it can also serve roughly the same function as a last will and testament while avoiding probate.
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References
- Photo Credit signing a contract image by William Berry from Fotolia.com
