In today’s entry in our ongoing series on basic estate planning questions, we are going to ask what is a revocable living trust. A common part of many estate plans, revocable living trusts have become increasingly popular in recent years because of a shifting of estate planning away from estate tax mitigation, and towards probate mitigation. To help explain what a revocable living trust is, let’s take a look at some common questions.
What is a revocable living trust? First of all, it’s a specific kind of trust.
A trust is a type of legal entity. Like a corporation, the trust doesn’t really exist in the physical sense, but it is something that the law recognizes, and which the law gives certain abilities. When you create a corporation, for example, that corporation is allowed to own property in its own name. The people who manage the corporation have a responsibility to take care of that property, while the people who own the corporation, the shareholders, have the right to profit from the corporation’s activities.
This is very similar to how a trust operates. When you create a trust you create an entity that has to be run or managed by a person, known as a trustee. The trustee doesn’t own the property the trust owns, but has to manage it on behalf of the beneficiaries who get to use or profit from it.
What is a revocable living trust? It’s a way to make inheritance choices.
Since your revocable living trust will be able to own property, you can transfer some, or all, of your personal property into the trust’s name. When you do this, the trust becomes the legal owner. So, at the time of your death, the trust will own the property, not you. This will mean that, because you don’t leave behind estate property, the probate court will not have to get involved in the process of that property going to new owners.
On the other hand, should you die leaving behind property titled in your name, that property will have to pass through probate.
What is a revocable living trust? It’s a way to keep your estate private.
Probate proceedings are civil legal proceedings that are open to public inspection. Once you die and a probate case is opened for your estate, what goes on in that case is a matter of public record.
This is not the case when you choose to leave inheritances through a revocable living trust. If you create a living trust you can keep your inheritance decisions private.