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A Revocable Trust - The Basics
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What is a Revocable Trust?
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A revocable trust is a
written declaration and contract in which you state that you (as "settlor") are
transferring your property into a trust for the benefit of yourself during your lifetime
(lifetime "beneficiary") and then for the benefit of your heirs (remainder
"beneficiaries"). You will be the "trustee" of your revocable trust
which means that during your lifetime, you will have complete control over the trust's
assets. The "successor trustee" you name will take control over your revocable
trust in case of your death or incapacity. In addition, you will have the power to change,
amend or revoke your revocable trust at any time during your lifetime.
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Avoidance of Probate
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The main advantage of a this type of trust is the avoidance of probate. Probate is a state court proceeding in which your property is transferred to your heirs. All Wills must be probated; not so with a fully-funded revocable trust. Since probate only affects assets you own at the time of your death, assets placed in a revocable trust are not owned by you, therefore, there is no probate on those assets. Probate will generally cost about 3-4% of the value of the probate assets and will take from 9 months to 2 years to complete (absent litigation or contested claims). You save probate fees by using a properly funded revocable trust.
Generally, the settlor will also execute a "pour-over" Will, which places any
assets not already part of the trust, into the trust. A pour-over will is subject to
probate, but having one in place ensures that all assets will be distributed in accordance
with the revocable trust, whether or not the assets were part of the trust at the
settlor's death.
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Confidentiality and
Continuity of Ownership
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Since probate is a court
proceeding, your Will and the valuation of your assets are open to public inspection. A
revocable trust, however, is confidential and the transfer of assets from the trust is
kept from public view. When the settlor of the trust dies or becomes incapacitated, the
successor trustee continues the administration of the trust. With a revocable trust,
there is no "gap" period between the time of death and the appointment of the
executor which occurs under a Will. Also, the continuity of the trust is preserved, should
the settlor becomes incapacitated by illness or accident, through the successor trustee.
In this case, the trust would be administered for the benefit of the grantor.
See Also - Tax Prophet's Section on Estate Planning.
See Also - Use of Revocable and Irrevocable Trusts.
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