​What Is A Revocable Trust, And Do You Need One?

It might seem like, for a bunch of accountants, we talk an awful lot about death. We promise we’re not trying to be morbid. It’s just that there’s a lot to think about when it comes to planning for the end of your life.

One of the things you might have considered is a trust. But is one right for your situation? If so, what type should you consider?

Terms to Know

Before we get into a type of trust called a revocable living trust, let’s define some commonly used words in the world of trusts and estates.

• Trust-maker: The person who makes the trust, also called a trustor or a grantor
• Trustee: Usually, that’s also the trust-maker, and they handle all the “fun” administrative duties, like keeping track of tax returns and any income the trust earns
• Successor trustee: That’s who will manage the trust when the trust-maker can’t
• Beneficiaries: The people or organizations (like a nonprofit) who will get the trust’s assets once the trust-maker dies

Revocable Living Trust

One trust option is a revocable living trust, usually just called a revocable trust or living trust.

Basically, a revocable trust is a written document that spells out how you want your assets dealt with when you die. Your assets might include the money in your bank account, your home, or any possessions that are important to you, like your dog.

Because it’s a living trust, you make it while you’re alive. And while you’re alive, you’ll usually be the trustee and income beneficiary. The assets then pass to your beneficiaries when you die.

What makes this type of trust unique is that you can change or revoke (thus the “revocable” in the name) the trust’s provisions whenever you want before your death.

Who Should Have One?

A revocable trust might be right for you if:

• You want — or your financial situation requires — a level of continuity about how your affairs are managed when you die or if you become disabled.
• You want a certain level of privacy about your assets and your wishes.
• You own property in several states and want to avoid the multi-state probate process.
• You want to avoid the cost and time associated with needing to probate individually owned assets.

Benefits, Drawbacks, and Things to Remember

Probably the biggest plus of a revocable trust is that it is … well, revocable. That makes it different than an irrevocable trust, where you can’t change or cancel the trust unless everyone named in the trust agrees. (One thing to note is that a revocable trust becomes irrevocable when you die.)

If you’re the trust-maker, you’re responsible for paying the taxes on any income the trust generates. Revocable trusts are what’s called “tax neutral.” Basically, that means there aren’t tax benefits or disadvantages compared to individually owning an asset.

The terms of the trust control the assets, not your will, if you have one. Also, because the assets in your trust aren’t subject to probate, that can speed up the settlement process. That way, your beneficiaries can access any money more quickly if there are bills they need to pay when you die.

As the revocable trust’s trustee, you act as the owner of the assets. So, if someone else has power of attorney, they don’t own or control your assets.

If you have questions about what trust type might be right for you, let us know.