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A trust is a legal agreement that dictates how a person’s assets should be managed, both during her life and at the time of her death. A revocable trust is a trust that can be amended or terminated by the person who created it at any point in the creator’s life. It is also called a living revocable trust. There are usually three distinct parties involved in the trust process: the grantor or creator of the trust, the trustee or the manager of the trust, and the beneficiary or the recipient of the assets of the trust.
There are two main steps involved in forming a revocable trust. To begin with, an attorney will prepare a trust agreement, indenture of trust, or declaration of trust. This is a legal document that is signed by both the grantor and the trustee or manager of the trust. It will specifically state which assets are included in the trust and who the beneficiary is.
Next, the grantor transfers control of the assets covered by the trust to the trustee. For example, the trustee may manage all the assets that the grantor has in a particular business account. Once the assets are placed in a trust, it is up to the trustee to ensure that the assets are being used according to the wishes of the grantor. In addition, it is only the beneficiary that can use the assets.
A revocable trust is different than other forms of living trusts because it can be amended or revoked all together during the lifetime of the grantor. The grantor may have a variety of reasons that she deems worthy enough to revoke the trust. The terms of revocation of the trust can include such things as marriage, death, divorce, the birth of a child, illness, change of residence, disability, or even just because the grantor has changed her mind.
Once the grantor is no longer living, the trust changes from a revocable one to an irrevocable one. This means that no further changes can be made. In addition, the trust assets can no longer be taken away from the beneficiary.
Although a revocable trust is an interesting way to control assets, it should not be used as a substitute for a will. A will should always accompany the trust, addressing any remaining assets that are not included in the trust. There are also certain legal considerations that cannot be addressed in a trust, such as who will be the legal guardian of a child upon the death of the child’s parents. Guardianship can only be addressed in a will or pursuant to the laws of a given state or country.
There are quite a few benefits to a revocable trust. The assets in the trust are not included when the probate administration computes the fees for the estate attorney or the probate representative. In addition, fter the grantor dies, the administration of the trust does not leave a paper trail. There are few public documents that reveal the beneficiary’s identity or the amount of the assets included in the trust. Any property left to the beneficiaries can also be distributed more quickly than assets that have to go through probate administration.
Although there are benefits, there is also cause for caution before choosing to put assets in a revocable trust. For instance, there are some tax implications. In addition, a few legal issues remain unanswered by law. For example, in some jurisdictions, it is unclear whether a grantor can disinherit her spouse by moving all of her assets into a trust. In addition, in some areas, a divorce will disinherit a spouse from receiving assets assigned to him or her in a will created prior to divorce; however, it may not disqualify an ex-spouse from receiving assets transferred to her through a trust. A good estate planning attorney will help clients decide if this is the right kind of trust for them.
Should annuities as well as IRAs be put into the trust?