Revocable living trust

Also called Revocable trust

A trust created during life that the owner controls and can change or cancel, used mainly to pass assets privately without probate.

What it means

With a revocable living trust, the creator (grantor) moves assets into a trust and usually serves as trustee, keeping full control while alive. The grantor names a successor trustee to manage the assets if they become incapacitated and to distribute them after death according to the trust’s terms. Because it is revocable, the grantor can change beneficiaries, add or remove assets or end the trust at any time.

Assets properly titled in the trust generally avoid probate, and the trust terms usually stay private. The trust only controls what is actually transferred into it, a step called funding, so a pour-over will is often used to catch anything left out. During the grantor’s life it is generally ignored for income tax purposes, and it typically does not reduce estate tax or shield assets from the grantor’s creditors.

Example

Suppose a homeowner retitles their house and brokerage account into a revocable trust and names their daughter successor trustee. After the homeowner dies, the daughter can transfer both assets to the beneficiaries without waiting for a probate court.

How it’s used

Avoiding probate, especially for real estate in more than one state
Planning for management of assets during incapacity
Keeping estate details out of public court records

Strengths and weaknesses

Strengths

Assets in the trust generally skip probate
Allows smooth management if the grantor becomes incapacitated
Fully changeable during the grantor’s life
More private than a will

Weaknesses

Costs more to set up than a simple will
Must be funded by retitling assets, or it does little
Generally no estate tax savings or creditor protection

Good to know

Trust and property laws vary by state, and an estate attorney often drafts the trust and helps retitle assets.

Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.