Revocable Trust

What Is a Revocable Trust?

A revocable trust is a legal arrangement in which a person, called the grantor or settlor, transfers assets into a trust while keeping the power to change its terms, add or remove assets, or cancel the trust entirely during their lifetime. Because the grantor keeps this control, the trust is generally treated as the grantor's own property for legal and tax purposes until it becomes irrevocable, usually at death.

The grantor often names themselves as the initial trustee, who manages the assets, and names one or more beneficiary who will receive them. A successor trustee is named to take over when the grantor dies or becomes unable to manage their affairs.

How It Works

Assets placed in the trust, such as a home, bank accounts, or investment accounts, are retitled in the name of the trust rather than the individual. The grantor can usually continue to buy, sell, and use these assets as before. When the grantor dies, the successor trustee distributes the assets according to the trust document without going through probate court, which is one of the most common reasons people use these trusts.

Revocable trusts are often paired with a pour-over will, which catches any assets that were not transferred into the trust before death and directs them into it.

Advantages and Limitations

Potential advantages include:

• Assets can pass to beneficiaries outside of probate, which may save time and keep details more private.
• The trust can provide for management of assets if the grantor becomes incapacitated.
• Terms can be updated as circumstances change, such as after marriage, divorce, or the birth of a child.

Limitations include:

• Because the grantor keeps control, assets in a revocable trust are generally still reachable by the grantor's creditors and are included in the taxable estate for estate tax purposes.
• Creating and funding a trust usually involves more upfront work and cost than a simple will, and assets must be properly retitled for the trust to work as intended.