An Illustration of a Revocable Living Trust
One of the most common estate planning tools explained.
Most people have heard of trusts, but often times when I begin a conversation with a client about whether a trust should be incorporated into their estate plan, I am met with blank stares and dozens of questions. If you have heard of a trust but don't really know what it does or how it works, you're not alone.
When estate planning attorneys talk about trusts, they can be referring to a number of different planning mechanisms- living trusts, testamentary trusts, GRITs, GRATs, charitable trusts, etc. But, for the average American or married couple, when we use the term trust, we are referring to what is known as a Revocable Living (or inter vivos) Trust.
A Revocable Living Trust, in its simplest sense, is an entity created by an individual (or multiple individuals) during his or her lifetime to hold assets which will be managed by a trustee according to a specific set of rules, directions and terms. As the name suggests, a revocable living trust is revocable or amendable by the grantor (the individual that creates the trust) during his or her lifetime.
So how does a revocable living trust work as part of an estate plan?
When a revocable living trust is incorporated into an estate plan, it typically serves as the main vehicle through which assets are transferred upon death. For example, if a husband and wife transfer their home, investments, bank accounts and other property into the trust while they are living, upon the death of the first spouse, everything will automatically flow to the surviving spouse through the trust. Upon the death of the second spouse, the trust will instruct a successor trustee how all of the assets should be distributed and to whom they should be distributed. There are a number of benefits of using a revocable living trust, including the minimization of necessary probate procedures, asset management in the event of a disability, confidentiality, continuity of management after death and coordinated management with a spouse's property.
The illustration below sets out the basic life of a revocable living trust.
