Managing Revocable Living Trusts: What and Why?

“I had an inheritance from my father, It was the moon and the sun. And though I roam all over the world, the spending of it’s never done.” –  Ernest Hemingway, For Whom the Bell Tolls

What is a revocable living trust? Actually, what is a living trust and why should it be revocable? These might sound like stupid, inane questions to you; however, the fact of the matter is, that unless you are a legal expert or an accounting wizard, there is a good chance that you have no idea any of these terms mean. Therefore, let’s start by having a look at the definition of a living trust and why can it be revoked.

What?

According to the American author Suze Orman, “a revocable living trust allows your heirs to avoid probate entirely and keeps you in complete control of your finances while you’re alive. You can always make changes to what’s in the trust and to how you’d ultimately like it managed or disbursed.“

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In layman’s terms,  a revocable living trust is a legal entity or trust fund that is created to hold the ownership of an individual’s assets. The grantor is the person who creates the trust, while the trustee is the person who controls and manages the property held within the trust fund.  The grantor and trustee are often the same individuals; however, some grantors prefer to appoint an attorney or institution to act as the trustee. It must be noted that the appointment of an external third party as trustee is not standard in this type of trust fund.

A revocable trust just means that you can keep on making changes to the assets and beneficiaries  until the grantor dies. At this point the trust becomes and irrevocable trust.

Why?

It is important to note that a living trust fulfils the same purpose as your last will. In a nutshell, a will is a legal document which details how you would like your assets distributed after your death.  On the other hand, a living trust is also a legal document; however, your assets are placed into a trust fund for you to benefit from during your lifetime, and then they are distributed to your beneficiaries after your death.  If you are the trustee of your living trust, it needs to specify who will take over the trusteeship should you become mentally or physically incapacitated.

Once you have passed on, your assets will be distributed to your beneficiaries quicker through a living trust than they will be if you only have a legal will. Your estate will not be distributed via court proceedings as it will be if you just have a legal will.  In legal jargon; the living trust avoids probate; however, the execution of your will have to go through probate.

Final words

I believe that we can safely conclude that revocable living trusts is a wise way to protect your assets while you are still alive, especially if you become incapacitated and unable to care for yourself. Your trustee will ensure that you are cared for without having to worry about where to find the funds.

Guest Author: Lolita Di