setting up a revocable trust

What is a Revocable Trust?

A revocable trust is worth considering as part of your estate plan. In case you've never thought about estate planning, it's crucial to securing your financial future. Estate plans offer several benefits:

  • Protects your assets
  • Ensures fulfillment of your wishes
  • Minimizes estate taxes
  • Eliminates probate court

A comprehensive estate plan includes a power of attorney, will, and advanced healthcare directive. Another powerful tool in estate planning is the revocable trust, a living or inter vivos trust.

It allows you to manage your assets during your lifetime. It also allows you to distribute them upon your death. And, as the name implies, the key feature of the trust is that you can change it, making it a valuable estate planning tool.

Revocable Trusts vs. Irrevocable Trusts

Although you can change a revocable living trust, that's not the case with an irrevocable trust, at least not without more effort. It requires the consent of the beneficiaries.

Otherwise, you can petition the court to modify the trust under a theory such as "changed circumstances." For example, you may seek to change the trust owing to a tax law change.

The other key difference between the two is control. With a revocable living trust, you retain control and ownership of the assets. You can also pass control to a successor trustee.

With an irrevocable living trust, on the other hand, you transfer ownership to the trust. That offers some advantages:

  • reducing estate taxes
  • gift tax exemptions through a gifting trust
  • ensuring that children on government benefits don't lose them through a special needs trust
  • shielding from creditors

Here's a comparison of irrevocable vs. revocable trusts:

Revocable Trust Irrevocable Trust
Protection of Assets You are liable for claims against the assets. Because the property doesn't belong to you, assets are protected from creditors or claimants.
Ownership You retain ownership of the property. The trust owns the property.
Trustee Appointment You serve as the trustee. You select the trustee.
Estate Taxes You remain liable to pay taxes. You are no longer responsible for estate taxes.

Benefits of a Revocable Living Trust

An estate attorney can help you decide which type of trust suits your circumstances. Revocable trusts offer several benefits in estate planning.

  • Avoidance of Probate: Assets in the trust bypass the often costly and time-consuming probate process. The assets also typically take precedence over those in your will.
  • Privacy and Confidentiality: Revocable trusts are not subject to public records, offering greater privacy for your estate.
  • Flexibility: Grantors can amend or revoke the trust as circumstances change.
  • Planning for Incapacity: It can outline plans for your care in case of incapacity.
  • Tax Benefits: While revocable trusts don't provide significant tax benefits, they can be part of a broader tax strategy. For example, you can include provisions to transfer wealth by creating a credit shelter should you die.
  • Avoiding Challenges: A will may create disputes, with family members challenging it. With a trust, you can disinherit anyone who challenges it.
  • Segregation of Assets: For married couples with substantial separate property assets, you can keep those assets from community property.

You can't include retirement savings, health accounts, cars, and money in a revocable living trust. The same holds for assets held in other countries. However, you can include bank accounts in a trust.

How to Create a Trust

To create a revocable trust, follow these steps:

  1. Identify the assets to include in the trust.
  2. Select a trustee who will manage the trust's assets.
  3. Draft the trust document specifying the distribution of assets.
  4. Fund the trust by transferring ownership of assets into it.
  5. Maintain and update the trust as necessary to reflect changing circumstances.

Talk with an estate attorney near you to ensure you correctly set up the revocable trust. Each state has differences in trust laws. That said, a trust drawn up in one state is valid in any state. However, some differences between jurisdictions may make it advisable to review and modify your trust. You can get more information on revocable trusts in PA here.

Our Estate Attorneys Can Help with Trust Creation

Regardless of the type of trust, our estate attorneys can offer guidance. We have law offices in Norristown and Doylestown, PA. We can also help with other estate planning documents, such as POAs, wills, and advanced care directives.


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