What Is a Revocable Living Trust?
Understanding what a revocable living trust is, how it works, and why many Michigan families choose to include one in their estate plan.
Key Points
A revocable living trust can own and manage your property during your lifetime and after your death.
You typically remain in control while you are alive and capable.
A trust can help avoid probate for properly funded assets.
A trust can provide continuity during incapacity.
Many trust-based estate plans also include a will.
Revocable living trusts are often misunderstood. Some people believe everyone needs one, while others think they are only for the wealthy.
The truth is that a revocable living trust is simply another legal tool. For some people it offers significant advantages. For others, a carefully prepared will may be sufficient.
One way to think about a trust is as a legal container that can own and manage property. You may place certain assets into that container, continue managing them while you are alive and capable, and provide instructions for how they should be managed if you become incapacitated and after your death.
The important question is not whether a trust is "better." It is whether it helps accomplish your goals.
What Is a Revocable Living Trust?
A revocable living trust is a legal arrangement that can hold and manage property.
During your lifetime you will often serve as both the creator of the trust and its trustee, allowing you to continue buying, selling, investing, and managing trust assets much as you did before creating the trust.
Because the trust owns the assets transferred into it, those assets can often pass without probate after your death.
How Does It Work?
After creating the trust, you transfer selected assets into it through a process known as funding the trust.
If you later become incapacitated, your successor trustee can manage those trust assets according to the trust's instructions.
After your death, the successor trustee administers and distributes the trust property.
Understanding the People Involved
The person creating the trust is commonly called the grantor, settlor, or trustmaker.
The trustee manages the trust assets.
If you become unable to serve, the successor trustee steps in.
The beneficiaries are the people or organizations who ultimately benefit from the trust.
What Is Trust Funding?
Creating the trust is only the first step.
Assets generally must be transferred into the trust before the trust can control them.
Funding may involve changing title to:
Real estate
Financial accounts
Business interests
Other property
This is where many trusts become less effective.
People sometimes take the time to create a trust but never finish funding it, or they later acquire new assets and forget to transfer them into the trust.
Assets left outside the trust may still require probate, reducing many of the benefits the trust was intended to provide.
For that reason, trust funding is not a one-time task. It should be reviewed periodically as your assets and circumstances change.
What Are the Advantages?
Can help avoid probate for properly funded trust assets.
Provides continuity during incapacity.
May provide greater privacy than probate.
Allows ongoing management of assets for beneficiaries.
Can simplify administration after death.
What Are the Disadvantages?
Potential considerations include:
Higher upfront cost than a simple will.
Trust assets must be properly funded.
The trust should be reviewed as circumstances change.
Some assets may require additional planning.
Do I Still Need a Will?
Usually.
Many trust-based estate plans include a pour-over will that can:
Nominate guardians for minor children.
Nominate a personal representative.
Direct certain probate assets into the trust.
A pour-over will can also act as a safety net by directing probate assets into the trust after death if they were not transferred there during life.
[Website Editor Note: Insert the Estate Planning Timeline graphic here.]
Can I Change or Revoke My Trust?
Generally, yes, as long as you have legal capacity.
If you later become incapacitated, the trust usually continues to operate according to the terms you created, but you generally cannot amend or revoke it at that point.
Common Misconceptions
Everyone needs a trust.
No. A trust is an excellent tool in many situations, but it is not automatically the right choice for everyone.
A trust eliminates every probate.
No. Only assets properly transferred to the trust generally avoid probate.
Once I create a trust, I'm finished.
No. Creating the trust is only part of the process. Funding and periodic review are equally important.
Frequently Asked Questions
Does a trust avoid probate?
Often, but only for assets properly owned by or payable to the trust.
Do I lose control of my property?
Generally, no. Most people continue serving as their own trustee.
What is a Certificate of Trust?
A Certificate of Trust is a shortened document summarizing key information about the trust. It is often used instead of providing the entire trust agreement when dealing with financial institutions or other third parties.
Can I have both a will and a trust?
Yes. Many comprehensive estate plans include both because they perform different functions.
Your Next Step
A revocable living trust is a valuable planning tool, but it is not automatically the right choice for everyone.
The best approach depends on your family, your assets, and your planning goals.
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What Is a Revocable Living Trust?
About Jarrod Barron Law
Jarrod Barron Law helps Michigan individuals, families, and business owners make informed legal decisions through thoughtful, plain-English estate planning.
Disclaimer
This article is provided for general educational purposes only. It is not legal advice and does not create an attorney-client relationship.