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What are revocable trusts?

On Behalf of | Oct 13, 2020 | Estate Planning

For those with a lot of assets, the estate planning process is much more complicated, but it is also much more important. After all, no one wants Uncle Sam or the state taking their hard earned assets, when they could have gone to our loved ones and beloved charities. And, as revocable trusts can help avoid probate and taxes, they are often part of the estate planning conversation with attorneys.

Why are they called revocable?

Chapter 736 of the Florida Statutes governs revocable trusts, also known as living trusts. The trust is known as revocable or living because one can terminate or modify it during their lifetime, i.e., when one is alive (and not incapacitated).

How are they created?

These types of trusts are created through a trust agreement. This agreement controls how one’s assets are managed during their lifetime, and then how they are managed and distributed after one passes away.

Who controls the trust?

The person who effectuates this management is called the trustee, and this can either be the person who owns the assets or a third-party person or entity. These third parties are often attorneys, banks or trust companies.

While one is alive, the trustee, who again, can be the person who owns the assets, manages and invests the trust assets. In addition, the assets and money those assets make can normally be withdraw, up to the entire amount.

What happens at incapacitation or death?

If the owner is also the trustee, their trust agreements should name a backup trustee. If this is not done, then the family will have to go get a court-appointed guardian. The trustee (whether named in the trust agreement or court-appointed) will then be the one who manages the trust assets, including making investment decisions and paying bills. After one passes away, the trustee pays debts, taxes and then distributes the assets according to the trust agreement.

Does a revocable trust still need probate?

No. That is its primary benefit. Since all of one’s assets are transferred into the trust during one’s life, there is no need for probate. After all, there is already a person appointed to handle one’s assets, and those assets are “owned” by the trust. Of course, these matter can get complicated, and anyone thinking about trusts should consult an attorney.