Revocable Living Trust: Definition, How Living Trusts Work

Revocable living trusts, often called living trusts, can help you manage your assets during and after your life.
Connor Emmert
Kay Bell
Tiffany Lam-Balfour
By Tiffany Lam-Balfour,  Kay Bell and  Connor Emmert 
Updated
Edited by Tina Orem

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A revocable living trust, also called a living trust, revocable trust or inter vivos trust, is a legal document in which you let a trustee manage designated assets for you and your beneficiaries during your lifetime

Cornell Law School. Living will. Accessed Jun 29, 2023.
. The trust is changeable and can provide more control than a will.

  • A living trust or revocable living trust can help your estate and heirs avoid the hassle and costs of probate.

  • A living trust cannot designate guardianship for minor children, so wills and living trusts are often used together as part of an estate plan.

  • Living trusts are trusts established during one’s lifetime, as opposed to testamentary trusts, which are created upon one’s death

    Cornell Law School. Testamentary trust. Accessed Jun 29, 2023.
    .

  • Technically, living trusts can be revocable or irrevocable. However, people often refer to revocable living trusts or revocable trusts simply as “living trusts.”

» What kind of trust works for you? Compare revocable vs. irrevocable trusts

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How to create a revocable living trust

1. Create a trust document

The trust document lists assets the grantor wishes to include in the trust. It also names a trustee, as well as the heirs or beneficiaries who will receive assets after the grantor dies.

2. Sign and notarize the trust agreement

The grantor must sign the trust document and have it notarized to make it official.

3. Transfer assets into the trust

The grantor should transfer assets — such as bank accounts, investment accounts and real estate — to the trust by retitling the assets in the name of the trust. You can also title limited liability companies and tangible personal property, such as jewelry, into a trust.

Pros and cons of revocable living trusts

Benefits

Drawbacks

Protects in case of incapacity. The trust must be created when the person is mentally capable of agreeing to the document, or it won’t be legally binding. When the person dies or becomes incapable of handling their financial affairs, the trustee or successor trustee takes over.

Can be more complex and costly to set up. Depending on how complicated your estate plan is, working with financial professionals or estate planning attorneys can make living trusts more expensive than setting up a will. Transferring assets to the trust can be difficult and time-consuming.

Can save costs related to probate, the court-supervised process that manages the distribution of your assets when you die. Assets held in trust typically aren’t subject to probate, which can be a long, costly process.

Does not provide estate tax benefits. The grantor of a revocable living trust maintains control of the assets in the trust and can “revoke” or change the trust at any time, so they’re still subject to estate taxes on the assets. An irrevocable living trust removes control of the assets and thus can reduce tax liability.

Preserves privacy. Probate proceedings are usually public record, but assets in a living trust can avoid probate and maintain privacy.

Does not protect against creditors. Assets in a revocable living trust do not have protection from current or future creditors in the event of your death, but assets in an irrevocable living trust might.

Generally takes legal precedence over wills. Living trusts are effective once signed and funded while you’re still alive and they usually aren’t subject to probate, so they’re less likely to be contested after you die.

Cannot designate guardianship for minor children. You use a will to name guardians for your children in case of your death, not a trust.

Revocable living trust vs. will

The main difference between a living trust and a will is when the legal agreement becomes active and what assets they concern. Living trusts are active during your lifetime once they’re signed and funded, while wills only come into play after your death.

Trusts tend to deal with specific assets rather than the sum of your personal holdings. You’ll probably still need a will if you set up a trust. A pour-over will is a common counterpart to a living trust, as it ensures that any assets not already in your trust will automatically transfer over to your living trust after you die.

Frequently asked questions

Not necessarily. You don’t need special licenses to create a trust, though it can be a lot of work depending on your situation and how complicated your estate plan might be. If your estate plan is fairly simple and you have the time, you can write your own living trust; if your assets or family situation is more complex, you may want to consult an estate planning attorney.

No, revocable living trusts do not reduce estate taxes. Because the grantor maintains control of a revocable living trust and can change or cancel it at any time, all assets in the trust are still considered owned by the grantor. Therefore, the grantor must report income from the trust on their personal income tax return rather than file a separate tax return for the trust.

Irrevocable trusts, on the other hand, remove assets from your taxable estate and therefore can help lower your estate taxes.

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