A revocable living trust, or simply known as a living trust, is a legal document that holds title or an ownership of an individual’s property and assets. A revocable living trust is created by a grantor to hold the grantor’s assets which is then invested on something else and spent for the benefit of the grantor as the beneficiary by a trustee.
The revocable living trust is basically an arrangement where an individual, the grantor, transfers his or her property into a trust throughout the course of the individual’s lifetime. The trust is revocable meaning that, the maker of the trust can make changes to the trust as he or she sees fit.
A revocable living trust is different from a properly funded trust and has several advantages for the maker of the trust:
- A revocable living trust does not go through probate.
- Prevents the court from taking control of grantor’s assets at the time of death or mental illness.
- Gives the grantor control over the assets to be left behind for beneficiaries such as children and grand children.
A revocable living trust usually involves three people: the grantor, trustee and a beneficiary. The grantor is the one who creates the trust; the trustee is the person or entity that manages the assets and property according to the direction of the grantor; and the beneficiary is the person who receives the benefits of the trust.
Any legal adult can create a revocable living trust and can appoint any competent adult as the trustee. Most grantors, instead of appointing a single individual as a trustee, choose to appoint banks and trusts firms to manage their property and assets. Once a revocable living trust has been established, there are three phases covered by the trust.
Three Phases Covered By A Revocable Living Trust:
- The Grantor is alive and well. The first phase of the revocable living trust is during the time when the maker of the trust is alive and not suffering from any illness that will affect his decision making. During this time, the grantor will have the liberty to make adjustments and changes to the trust and the investment decisions.
The only exception during this phase is that the grantor will sign as the trustee instead of an individual. The grantor will also be able to use his or her own social security number as a taxpayer’s identification for the revocable living trust.
- The Grantor becomes mentally incapacitated. The second phase of the revocable living trust kicks in when the grantor falls ill and becomes mentally incapacitated and unable to make proper decisions. The grantor will no longer be the trustee and the appointment of the new trustee will be according to the agreement in the revocable living trust.The ‘Disability Trustee’ will now be in charge of the grantor’s properties and manage whatever assets have been allocated to the fund. The new trustee will be in charge of paying the grantor’s bills.
- Death of the Grantor. Upon the death of the grantor, the ‘Administrative’ or ‘Successor Trustee’ will take over the trust and pay all the grantor’s outstanding bills, debts and taxes.When all forms of debt has been paid off, the trustee will then distribute the remaining assets and properties accordingly as stated in the revocable living trust.
Find out what Estate Planning Attorney Mark Biernath has to say about a revocable living trust.
As opposed to a revocable living trust, there is an irrevocable living trust which is defined as a trust which can neither be terminated nor can be modified, until and unless the beneficiary provides permission to do that. In this kind of trust, once the grantor has transferred all his assetsto the trust, the grantor do not possess any control over them.