Is a revocable trust the same as a will? What is it, and how to create one? Find out answers to all these questions in this article.
A revocable living trust is a legal document that deals with management and distribution of your property during your life, as well as after you die. In simple words, it ensures that asset transfer takes place, according to the terms and conditions laid down by you. This particular phrase can be broken down into two parts-revocable and living. The first part implies that you can amend it anytime you wish, and the second one implies that you can create and execute it, while you are still alive. In fact, it operates during three phases, while you are alive, disabled, and after your death.
Revocable Living Trust Defined
It is a written agreement that confers the rights of managing and distributing your property to a trustee, who ensures that your estate is transferred to the rightful beneficiaries. In this process, the owner of the property converts it into a trust document and acts as trustee until his/her death. Often husband and wife jointly act as trustees of their property. However, it is also not uncommon for people to appoint a third person, or a corporate company as one. Usually, these people are wealthy individuals, who have assets worth millions of dollars. Thus, this document involves three parties, which are as follows:
Settlor: This is the person who creates the document and provides trust funds. One can be a joint settlor with another family member, while creating one. Most of the assets involved are in the name of settlor(s), while they are alive.
Trustee: He acts as a caretaker of the trust document until it is transferred to its rightful beneficiaries. During the lifetime of the settlor, he may himself choose to be the trustee of it. In that case, a successor trustee is also appointed to serve it, in case of death of the settlor; he is also paid for the services that he offers. After the death of the settlor, it is the responsibility of the trustee to pay the taxes, final bills of the settlor, and settle other financial matters.
Beneficiary: These are the individuals (or an entity) that receive income from the trust. The settlors are the sole beneficiaries of it, during their lifetime. However, after death, their legal heirs or a charity can become beneficiaries. The settlors choose the beneficiaries during their lifetime, so that there are no disputes after their death. They also have the right to revoke the document, and add or delete the beneficiaries, or make any other amendment regarding the distribution of property.
There are several advantages of creating the document. As it is revocable, the settlor can revise or terminate it at any point of time. After his death, the document becomes irrevocable, thereby leaving no scope for legal disputes. Another great advantage is that you are relieved of the probate expenses. Besides, after the death of settlor, the entire proceeding is between trustee and beneficiaries, without court or public intervention. This allows faster transfer of assets. Even in case of sale of assets by the beneficiary, no court order is required.
Although this document is useful, it can never be a substitute for a will. Some of the provisions, such as appointing guardian for minor children after a settlor’s death, can only be made into a will. A will can be individual, or accompanied by a revocable living trust document.