how a revocable trust works
a revocable trust is a part of estate planning that manages the assets of the grantor as the owner ages the trust can be amended or revoked as the grantor desires and the property it holds is included in estate taxes depending on the trust s directions a trustee might be assigned to manage the assets or property within the trust the trustee is also charged with distributing the assets to the beneficiaries the trust remains private and becomes irrevocable upon the grantor s death the money or property held by the trustee for the benefit of someone else is called the principal of the trust the value of the principal can change due to the trustee s expenses or the investment s appreciation or depreciation in the financial markets the collective assets comprise the trust fund the person or people benefiting from the trust are the beneficiaries because a revocable trust holds the assets and it doesn t die the trust avoids probate which is the legal process of distributing assets of a will the grantor often acts as the trustee of a revocable trust this is quite unlike an irrevocable trust these trusts have been the centerpieces of most estate plans for decades all trusts are either revocable i e living trusts that can be changed by the grantor if need be or irrevocable fixed trusts that cannot be changed once established advantages and disadvantages of a revocable trustthere are several advantages of establishing a revocable trust if the grantor experiences health concerns through the aging process a revocable trust allows the grantor s chosen manager to take control of the principal if the grantor owns real estate outside the state of the grantor s domicile and the real estate is included in the trust the ancillary probate of the real estate is avoided if a beneficiary is not of legal age and cannot hold property the minor s assets are held in the trust rather than having the court appoint a guardian if the grantor believes a beneficiary will not use the assets wisely the trust allows a set amount of money to be distributed on a regular basis administration of these trusts is quite easy they re disregarded entities for income tax purposes meaning that any assets in the trust carry through to their grantors during their lifetimes there are some disadvantages to revocable trusts implementing a revocable trust involves much time and effort assets must be retitled in the name of the trust to avoid probate the grantor s entire estate plan must be monitored annually to ensure the trust s objectives are being met costs of maintaining a revocable trust are greater than other estate planning tools such as a will a revocable trust does not offer the grantor tax advantages it s possible that not all assets will be included in the revocable trust so the grantor must create a will to designate beneficiaries for the remaining assets to avoid probate during the grantor s lifetime creditors can still reach the property in a revocable trust flexible and revocablecan avoid probateprotection of trustor becomes incapacitatedestablishes privacy for assetsno immediate tax advantagesno creditor protectioncan be expensive to establish and administer