You’ve worked hard to build a secure financial future. Unexpected events can put that security at risk, so it’s important to have a plan in place that will help protect your assets and ensure their distribution according to your wishes. One way to do this is with a revocable trust.
A revocable trust, also known as a living trust, is a valuable estate planning tool that provides greater flexibility and control during your lifetime than other trusts. Keep reading to learn more, then contact Select Law Partners PLLC to find out whether a revocable trust is right for you.
Revocable trust basics
Trusts are legal entities that are created to hold assets for the benefit of a person or organization. The terms of the trust determine how and when its assets can be accessed, used, and distributed. These distinct terms result in the trust being categorized as either revocable or irrevocable.
A revocable trust is unique in that the grantor can modify, revoke, or terminate it at any time during their life. An irrevocable trust, on the other hand, generally cannot be modified or revoked by the grantor once created.
Parties involved
There are three main parties involved in any type of trust:
- The grantor (also known as the trustor or settlor) – the person who creates and funds the trust
- The trustee – the individual or organization responsible for managing the trust
- The beneficiary – the individual or organization that receives the money or benefits from the trust
How does a revocable trust work?
Each revocable trust is structured differently, based on the specific needs and wishes of the grantor, but there are a few general principles that apply to most revocable trusts.
Creation of the trust
The grantor initiates the process of creating a revocable trust by drafting the document outlining its terms, and transferring assets into the trust. They may also name themselves as the trustee, which means that the grantor retains control of the trust’s assets and can use them however they like while they are alive.
The trust may also include provisions about what will happen after the grantor’s death. The grantor may name a successor trustee to take over their duties along with one or more beneficiaries who will receive the trust’s assets or other benefits after the grantor’s death.
Management of the trust
Because the grantor is also the primary trustee, they are responsible for managing the trust during their lifetime. This includes making sure that all assets are properly accounted for and distributed according to the trust’s terms.
Distribution of assets
When the grantor passes away, the trust becomes irrevocable, and its terms will determine how and when the assets are to be distributed to the beneficiaries. If the trust includes a successor trustee, this person will take over the task of managing its assets and distributing them according to the grantor’s wishes.
Potential tax implications
Before the grantor’s death, any income generated by the revocable trust is taxable under the grantor’s personal income tax return, and the trust’s activity is reported using the grantor’s Social Security number.
Once the grantor passes away and the trust becomes irrevocable, the trust will receive its own tax identification number, and any income it generates will be taxed as part of the trust’s tax return.
Benefits of a revocable trust
Revocable trusts share many benefits with irrevocable trusts, including allowing the assets to avoid going through probate court. Both trusts also allow the information about the trust’s assets to remain private.
Perhaps the greatest benefit of a revocable trust over an irrevocable trust is its flexibility. Circumstances inevitably change throughout one’s lifetime, and a revocable trust provides the grantor with the freedom to adjust the trust’s terms as needed. It also allows the grantor to retain access and control over their assets while they are alive.
Explore your options with our estate planning attorneys
If you have questions about what a revocable trust is or are considering establishing one, a Fairfax estate planning lawyer at Select Law Partners PLLC can help you weigh your options, advise you on the best course of action, and execute your wishes. Contact us today at (855) 541-4867 to get started.
