A revocable living trust is an estate planning tool which allows people to set assets aside before death. In the event that the grantor, the person who creates the trust, dies or becomes incapacitated, the assets are free for immediate use. Revocable living trusts are used in many regions of the world by people who want to ensure that their assets transfer smoothly and quickly.
Trusts in general are assets which are managed by a trustee on behalf of someone else, a beneficiary. There can be multiple trustees and multiple beneficiaries. In the case of a revocable living trust, the document is known as “revocable” because the grantor has the ability to make changes at any time, and can even dissolve the trust, if this is desired. This contrasts with an irrevocable trust, in which assets are signed over to the trustee and they cannot be recovered.
The grantor usually makes him or herself the first trustee. A secondary trustee is named to take over the trust in the event of death or incapacitation. Sometimes, multiple trustees may be named, especially with a large trust. The grantor can move things in and out of the trust during life, and can also change the terms of the trust. One important thing about a revocable trust is to make sure that the trustees are aware of how the grantor wants the assets in the trust handled, to avoid any confusion.
People still pay taxes on the assets in a trust, both during life in the form of taxes paid on income and earnings, and after death, in the form of inheritance taxes billed to people who inherit through the trust. The revocable living trust usually becomes irrevocable upon death, with the grantor's last wishes being fixed so that the trustee cannot abuse the trust. This also allows the grantor to establish caveats which may be beneficial, such as insisting that people wait until the age of 25 before accessing their share of the trust.
There are a number of reasons to choose a revocable living trust as part of a plan for retirement or other life events. A financial adviser can provide personalized advice on the basis of a given situation and any specific concerns which may be present. People should be aware that drafting the documents to create a revocable living trust can be costly, and that it is generally more expensive than writing a will.