Revocable trusts and wills

Setting up a revocable living trust

A revocable trust—otherwise known as a living trust—can solve a wide variety of problems associated with estate planning that wills cannot address. You might use a revocable trust alongside a will for several reasons. For example, a revocable trust can provide privacy for you and your beneficiaries when assets are distributed.

You can fund revocable trusts with a variety of assets, including:

  • Bank accounts
  • Securities
  • Certificates of deposit
  • Mutual funds
  • Other types of assets (real estate, partnership interests, etc.)

Transferring certain assets can be complicated and require the help of an attorney.

When you are the grantor of a revocable trust, you must report all income generated by trust assets on your personal income tax return. You are still the owner of the trust assets for tax purposes so there is generally no tax impact to your beneficiaries during your lifetime.

Reasons why you might consider a revocable trust

  • You own specialty assets. You hold real estate, artwork, and other assets that may be difficult to distribute to beneficiaries.
  • You hold assets in more than one state. Without a revocable trust, assets in more than one state—including real estate—are subject to a separate probate process for each state.
  • You have health concerns. In the case that the grantor becomes incapacitated, the trustee— instead of a court-supervised guardian or conservator—can manage the assets held in the name of a revocable trust.

Read the definitions for grantor, trustee and beneficiary

Setting up a will

Creating a Last Will and Testament (a will) is especially important for people with young children, because wills are the best way to provide for guardianship of minors.

A pour-over will, a type of will often used with a living trust, can also ensure that any overlooked assets not transferred into the trust prior to your death are going to flow from your probate estate into the trust. In other words, all property that passes through the will at your death is transferred to (poured into) your trust. If you haven't specified in a will where those assets should go, a court may decide to distribute them to heirs you didn't intend.

Compare wills to trusts

Insights

 

Irrevocable trust

Irrevocable trusts generally cannot be changed after they are established. They offer beneficiaries tax advantages and protection.

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Questions for beneficiaries to ask

Questions to ask your parents/trust administrator about the trust process – from the beneficiary’s point of view.

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