People create a revocable living trust to give someone else the power to make financial decisions on their behalf, in case they are unable to do so due to injury or illness. While an active trust offers many of the same coverages as a will, the two legal elements cover different periods of the grantor's life. A revocable living trust covers a person's assets while they are alive, when they are incapacitated, and when they have died. A living will only covers the person's assets after their death.
In a revocable living trust, the grantor still owns your assets and is responsible for reporting the associated taxes on your personal return. A revocable active trust or an active trust also allows for smooth transition planning if the grantor becomes incapacitated. In the event of death, assets held in the revocable trust evade succession, meaning that they can be passed to the heirs without the need to go to court, which can be time-consuming and expensive. The assets of a living revocable trust are not protected by current or future creditors in the event of death (but the assets of a living irrevocable trust may be protected by creditors).
The assets in a revocable trust may also be subject to bankruptcy judgments, since the assets are still owned by the individual. Active trust allows you to make changes (or amendments) to the trust document while you are alive, at your own discretion. While assets held in an irrevocable trust are generally beyond the reach of creditors, that's not true in the case of a revocable trust. With a revocable living trust, the assets can be distributed to the grantor and, upon death, a “successor trustee” distributes the assets in accordance with the trust's legal dictates.
Revocable trusts are a good option for those who are concerned about keeping records and asset information private after your death. Contrary to popular belief, revocable living trusts offer very little asset protection if you retain a share in the property, for example, if you make yourself a trustee. A living trust or a revocable living trust can help your estate and heirs avoid the complications and costs of probate. Setting up a trust requires serious legal help, which isn't cheap, but the price is likely to vary depending on where you live.
However, certain types of assets can still prevent probate legalization, such as retirement plans, insurance policies, annuities, and joint assets, meaning that a revocable trust may not always be necessary. Generally, a revocable living trust is a type of trust that can be canceled at any time and the grantor of the trust is both the trustee and the beneficiary (allowing control of the trust's assets). While establishing a revocable living trust has many advantages, it also has some drawbacks. A revocable trust is considered a more effective estate planning tool than just a last will and testament for several reasons.
A revocable living trust offers many benefits for those who want to ensure their financial affairs are taken care of in case they become incapacitated or pass away. It allows for smooth transition planning if you become incapacitated and helps your estate and heirs avoid costly probate proceedings. It also keeps records and asset information private after your death and offers more asset protection than just having a will. Creating a revocable living trust requires serious legal help and can be expensive depending on where you live.
However, certain types of assets can still prevent probate legalization without needing to set up a revocable living trust. Ultimately, it is up to you to decide whether setting up this type of trust is worth it for your particular situation.