What Is a Revocable Living Trust?

In North Carolina, just as everywhere else in the country, the term revocable living trust is often heard in connection with estate planning. There are a lot of misconceptions about what they are, how they work, and when they should be used.

Revocable living trusts are an estate planning tool. They are appropriate for many people, but they are not the best estate planning approach for everyone. Contrary to some advertisements, buying a kit or making your own revocable living trust is a very ill-advised decision. Only a North Carolina estate planning attorney who is well-versed in all aspects and tools of estate planning can help you determine whether a revocable living trust is the right choice for you. Understanding what one is and how they work will give you a good basis for having a discussion about revocable living trusts with your estate planning attorney. Then, you and your attorney can decide whether a revocable living trust is right for you and your family.

What Is a Living Trust?

Generally, a trust is a type of fund created by legal documents. The person making the trust is referred to as the grantor or settlor. The trust documents — also called the trust instruments — identify a person called the trustee, who will be in charge of managing and distributing the assets in the trust. The individuals who benefit from the trust are called beneficiaries. The trust documents specify how the trust fund assets will be managed and distributed to the beneficiaries.

Quite simply, a living trust is a trust created during the lifetime of the person making it. Another term for a living trust is inter vivos trust, from the Latin term that means literally “between the living.”

A living trust can be created as an irrevocable trust or as a revocable trust. An irrevocable living trust, once created, cannot be changed or terminated. The grantor gives up all control over assets placed in the trust. The opposite is true of a revocable living trust, which can be changed or terminated at will by the grantor or settlor during his or her lifetime. The grantor also retains full control over assets in the trust as long as it is revocable.

When a revocable living trust is used as part of an estate plan, the trust usually becomes irrevocable when the grantor dies. At that point, the trust can no longer be changed.

How Does a Revocable Living Trust Work?

A grantor creates a revocable living trust by properly executing a trust document. There are specific legal requirements that must be met for it to be valid.

Most often, the grantor names himself or herself as the trustee for the trust during his or her lifetime in the absence of incapacity. The trust documents specify that if the grantor becomes incapacitated or dies, a successor trustee named in the trust document will manage the assets. When the successor trustee assumes control of the trust, the trustee manages the trust either for the benefit of the grantor, if he or she is living but incapacitated, or for the beneficiaries, if the grantor has died.

After a revocable living trust is created, it has no effect until it is funded by the grantor. Funding a trustmeans making assets subject to the trust agreement or putting them into the trust. Different assets are placed into a trust in different ways. Because the grantor is also the trustee of the fund, placing the assets in the trust does not mean the grantor gives up any control over them at all. The grantor still has full control over the assets, just as if the trust did not even exist.

What Are the Advantages of a Revocable Living Trust?

In some situations, using a revocable living trust that becomes irrevocable on the grantor’s death can avoid having the grantor’s estate go through the probate process. Whether that is the case depends completely on the grantor’s individual circumstances and on the estate plan that is established before his or her death.

There also can be estate tax advantages to using a revocable living trust as part of an estate plan. Again, whether there are tax advantages will depend entirely on the specific situation.

One of the biggest advantages of a revocable living trust is that it protects the grantor and the trust assets in the event the grantor becomes incapacitated. After the trust is set up and funded, if the grantor becomes incapacitated, the successor trustee — who is selected by the grantor when the trust is created — assumes control of the trust and administers it as directed by the trust documents, according to the grantor’s wishes. In that way, establishment of a revocable living trust avoids leaving to chance what will happen to the assets and the grantor if he or she does become incapacitated during his or her lifetime.

Another advantage of a revocable living trust is privacy. Because the trust and the assets do not go through probate after the grantor’s death, there is no public record of the assets in the estate. For families who value privacy about their finances and assets, this aspect of a revocable living trust can be very appealing.

Talk With a North Carolina Attorney About a Revocable Living Trust

If you don’t have an estate plan — or if you have one and think it may be time to update it to include a revocable living trust — our estate planning attorneys at The Twiford Law Firm are here to help. We will discuss your circumstances and wishes and help you decide what kind of estate plan is best for your and your family’s needs, including whether a revocable living trust is the right choice.

With offices in Elizabeth City and Moyock, we serve clients throughout northeastern North Carolina, including the Outer Banks. Contact us today at 252-338-4151 or 252-435-2811 to schedule an initial consultation.