How to Create a Revocable Trust

Most trusts are private express trusts, meaning they are made through a legal document and are not a matter of public record. The person who creates a trust is called a settlor or grantor. The settlor transfers assets to a trustee who manages them on behalf of certain beneficiaries according to the terms of the trust document. A revocable trust is one in which the settlor retains the power to cancel or revoke, the trust at any time. The most common use of trusts is to keep assets out of probate.

Difficulty: Moderate

Instructions

1. Identify corpus, or the core of assets that make up the trust. Usually these are income producing assets whose income is distributed to beneficiaries. The corpus can be an assemblage of or a single kind of asset, including financial, property, or real estate. The trust document can allow for additions to the corpus by the settlor or others.

2. Select trustee(s) and beneficiaries. It is quite common for a settlor to act as either a trustee or a beneficiary, but he cannot simultaneously be the sole trustee and sole beneficiary. The essential requirement of a trust is at least one other person (or corporation) acting in one of these capacities. The selection of trustee and beneficiary is usually related to the purpose and subject matter of the trust.

3. Draft the trust instrument. The document that creates an express revocable trust usually includes the words "Revocable Trust" in the title to avoid ambiguity. It is possible to use a revocable trust form to create a trust, but most settlors choose to consult a lawyer or professional estate planner. The trust instrument must clearly identify the settlor, the trustee(s) and beneficiaries of the trust. It should identify the initial corpus and who can add to or withdraw from it. The rules by which the trustee is to manage the trust and disburse assets to the beneficiaries should also be described. See Additional Resources for a sample revocable trust instrument.

4. Title assets in the name of the trustee. If the trustee is someone other than the settlor, the assets that constitute the corpus of the trust should be legally held in the name of the trustee. If the title signifies the property is held "in trust" it could be required that the terms of the trust be disclosed before the property is sold.

Tips & Warnings

• Many revocable living trusts are formed through an instrument called a Declaration of Revocable Trust that establishes the settlor as trustee of certain assets in favor of particular beneficiaries (or class of beneficiaries). For tax purposes, the assets within a revocable living trust are treated as if they remained assets of the settlor, since the trust can be revoked at any time.
• The donation of assets to a trust is called a gratuitous transfer. The settlor is able to donate up to the maximum annual gift exemption per beneficiary of the trust. Transfers in excess of this amount are subject to the gift tax and can have estate tax implications.

References

• revocable trust
• Establishing A Revocable Living Trust

Resources

• Revocable Living Trust Form
• Revocable Trust Accounts

Who Can Help Sponsored

• Protect Yourself with a Trust - LegalZoom