Revocable Living Trusts: How They Work

A revocable living trust is one of the most common estate-planning tools around. It lets you decide, while you're still living, who ends up with your property after you die. It's called "revocable" because you can change or cancel it whenever your circumstances shift, and it's called "living" because you set it up during your lifetime — lawyers sometimes use the term "inter vivos" for this.

This overview draws on legal analysis from Betsy Simmons Hannibal, an attorney. Trust rules vary by state, so check what applies where you live before you rely on any of this.

Key takeaways:

• A revocable living trust is a common estate-planning tool you control during your life and use to pass on property when you die.
• Using one can help your family skip probate — often a slow, complicated court process — and may also help with estate taxes.
• Setting one up is straightforward, and many people put a trust together without hiring a lawyer.

In this article:

• How a living trust keeps your estate out of probate
• Weighing the benefits and drawbacks of a living trust
• What goes into the trust document
• Moving your property into the trust
• Living trust or will: what each one covers
• Revocable trusts compared with irrevocable trusts
• Do you need a lawyer to set one up?

How a living trust keeps your estate out of probate

Avoiding probate is the main reason most people set up a living trust. Probate is the court process that settles a person's affairs after death, and it can be slow, costly, and more trouble than it's worth. Property held in a living trust skips that process entirely and passes straight to the people you've named.

Weighing the benefits and drawbacks of a living trust

Steering clear of probate is the biggest upside, but a living trust brings a few other advantages too:

• more privacy, since a will becomes part of the public record once it's filed, while a trust document usually stays private
• more control over how your finances are handled
• a way to plan ahead in case you become incapacitated, and
• stronger protection if someone tries to challenge your wishes in court.

A living trust isn't without downsides. The main ones are:

• it takes extra time and money to set up and keep current, and
• it offers less protection from creditors than some alternatives.

Many people hire a lawyer to draft a trust, and legal fees can add up. You can also put together a simple living trust yourself using estate-planning software or a do-it-yourself service. Either way, you'll need to make sure your property is actually held by the trust. Anything you acquire later has to be added to the trust, or titled in the trust's name from the start, or it won't get the benefit of skipping probate.

What goes into the trust document

A living trust is a written, signed document, notarized like other formal legal papers. It needs to list the property the trust covers, name a trustee, and spell out who receives that property after you die.

The trustee is the person who manages the trust's property. While you're alive, that's usually you. Once you die, a successor trustee you've named steps in to take over.

Moving your property into the trust

Once the trust document exists, you still have to transfer ownership of anything you want it to cover. For many belongings, simply listing them in the trust document is enough. But property with a title — real estate, for instance — has to be formally retitled in the trust's name. That step usually isn't difficult, but skipping it, or getting it wrong, can send that property straight into probate anyway.

Living trust or will: what each one covers

Here's how a living trust stacks up against a simple will. Some planning goals can be handled by either document; others call for one or the other.

With either a will or a revocable living trust, you can:

• name who inherits specific property
• leave property to minor children, and
• update the document whenever your situation or wishes change.

Only a trust lets you:

• skip probate
• lower the odds of a court fight over your estate
• avoid a conservatorship, and
• keep the document out of the public record after you die.

Only a will lets you:

• name guardians for your children
• appoint an executor, and
• spell out how debts and taxes get paid.

For a closer side-by-side comparison, see Living Trust vs. Will.

Revocable trusts compared with irrevocable trusts

Trusts come in many forms, built for different purposes. Irrevocable trusts, for example, can help reduce estate taxes or provide for a family member with special needs — but once one is set up, it generally can't be changed the way a revocable trust can.

Do you need a lawyer to set one up?

You don't have to be a lawyer to create a living trust. If your situation is fairly simple and you're willing to put in the work, you can draft your own. That said, some situations are complicated enough that getting legal help is worth the cost.

For more on the do-it-yourself route, see Making a Living Trust: Can You Do It Yourself?