What is a Revocable Trust?
A revocable living trust is a tool used by estate planning attorneys to organize and protect your assets. A revocable living trust is sometimes referred to as a “revocable trust” or “living trust.” It may also be referred to as an “inter vivos trust,” which is Latin for a trust “among the living.” This name, however, has become much less common. All the varying names for the revocable living trust simply refer to the trust’s main characteristics, i.e., it is a trust which is revocable and made while you are living.
How to Set Up a Revocable Trust
To set up a revocable trust you must first execute a trust agreement. The trust agreement contains provisions which control the management and distribution of all assets held by the trust. The trust agreement also names the “trustee” of the trust. The trustee is the person who manages the assets held by the trust. In the beginning, the trust agreement generally names you as the trustee and requires that all assets of the trust are to be distributed to you, as you see fit. Should you become unable to manage your own affairs, the trust allows a new or successor trustee, named by you, to step into your shoes and continue to manage the trust. The new trustee will continue to manage the trust’s assets for your benefit. Meaning, you are still the only beneficiary of the trust or person who receives distributions from the trust. Should you pass away, the trust agreement contains provisions that tell the successor trustee how you would like your assets distributed.
Benefits of a Revocable Trust
Revocable living trusts are usually recommended by estate planning attorneys because they can help you avoid probate, which is notoriously expensive. However, they offer a number of advantages over other estate planning tools besides avoiding probate. Specifically, a revocable trust can help with the following:
Avoids Probate. Using a revocable trust can help prevent your heirs from having to go to probate. Probate is a court supervised process which transfers title of your assets to your heirs. Probate is time consuming, cumbersome and can cost your heirs thousands of dollars. A revocable trust is one way to avoid probate and the associated headaches. For more, see our Guide to Probate in Michigan.
Gifts. Revocable trusts allow you to place restrictions or conditions on gifts given to your heirs. Meaning, you can specify an age at which gifts are made, restrict the use of a home, or even require an heir to earn a college degree before receiving their inheritance. Moreover, a trust allows for alternate beneficiaries to avoid your wealth passing to an unintended person such as a child’s spouse or step-children.
Disability Planning. A revocable trust has a successor trustee who can manage your affairs if you become incapacitated. The successor trustee will manage the trust assets and make distributions to you or on your behalf as needed. As such, a trust can help prevent a conservatorship proceeding.
Control. The assets of your revocable trust are subject to the terms and conditions of the trust created by you. This means that the trust assets can only be used for those purposes you specify in the Trust.
Creditor Protection for your Heirs’ Debts. A revocable trust generally contains a spendthrift provision which can prevent creditors from taking your heirs’ inheritance. A spendthrift provision allows your successor trustee to keep assets in trust until an heir’s creditors are no longer a threat.
Tax Planning. A living trust can provide substantial tax benefits for certain estates.
Privacy. A trust offers more privacy than a simple will because it is generally not filed with the court. Therefore, it is not a public document nor a public record.
Business Planning. A revocable trust can be key in allowing you to pass your business interest to the next generation. Without proper planning, your business could end up in probate and suffer financially from lack of proper management.
A revocable trust can be the cornerstone of your estate plan. A revocable trust can be part of your comprehensive estate plan which also includes a durable financial power of attorney, medical power of attorney, a living will, HIPAA release and more. which includes In addition to the benefits outlined above, a revocable living trust provides a tremendous amount of organization allowing for a seamless transition as you age. Deciding to set up a revocable trust can be difficult. The attorneys at the law firm of Atlas Law, PLC are experienced in helping individuals and families with estate planning and probate services, providing you with the peace of mind that comes from knowing that those who rely on you in life will be able to continue to do so after your death.
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