A Trust is a financial agreement between someone who owns an asset and a trusted person to hold and manage that asset for them. Trusts allow for the controlled distribution of assets, can help avoid probate, provide asset protection, and are used for estate planning, care for dependents, or leaving a charitable legacy.
A revocable trust (often called a revocable living trust or "living trust") is a legal arrangement that allows you to manage your assets during your lifetime and then have them distributed to your beneficiaries after your death, without having to go through the court process called probate.
In estate planning, a Revocable Trust is often used as a substitute for a Will, but there are many other descriptions for any single Trust, such as Irrevocable, Living, Joint, Testamentary, and Grantor.
How does a Revocable Trust work?
A revocable trust protects the assets of the Trustor while the Trustor is alive. The Trustor can assign a trustee to manage the assets in the trust, or the Trustor can decide to take charge of the assets. After the Trustor dies, a trustee distributes the assets in the revocable trust to the named beneficiaries. If the Trustor managed the revocable trust until death, the trust must include the name of the person who takes over as trustee.
The assets held by the trustee for the financial benefit of the beneficiaries are referred to as the trust principal. Depending on financial markets, the value of the principal can either appreciate or depreciate. Since a revocable trust names at least one beneficiary, the trust avoids going through the time-consuming probate process.