A client recently asked me, “What is the difference between a revocable trust and a living trust?” The short answer is there is none; revocable trusts and living trusts, sometimes also called revocable living trusts, are all different names that describe the same thing. You might ask your attorney, “What is a revocable trust?” A revocable trust is an entity that may be created as part of an estate plan to own certain assets during a person’s lifetime (and after the person’s death) and direct the distribution of those assets at death. Here are five basic facts to know about revocable trusts if you are thinking about using them in your estate plan:
- Revocable Trusts Create Three Positions To Do The Job
Revocable trusts create three positions that interact with each other during the existence of the revocable trust. The Grantor is the “creator” of the revocable trust, and is also known as the Donor or Settlor. The Trustee is the “manager” of the revocable trust and any assets held in the revocable trust. The assets in the revocable trust are held for the benefit of the trust Beneficiary. One or more people can fill all three positions at one time, or separate people can fill each position, depending on the circumstances. For example, I created a revocable trust for myself, which holds my assets that I freely use – I am the Grantor, Trustee and Beneficiary during my lifetime. If I become incapacitated, my mother will manage my revocable trust as successor Trustee instead of me, but I will remain the Beneficiary of the trust and therefore my mother as Trustee may use the trust assets only for my benefit. At my death, the assets held in the revocable trust will be distributed by my mother as Trustee to the Beneficiaries who I have named in the trust as the recipients of those assets at my death.
- Revocable Trusts May Be Changed During the Grantor’s Lifetime
“Can you change a revocable trust?” The Grantor retains special powers when he or she creates the revocable trust. As long as the Grantor is alive and competent, he or she may change the terms of the revocable trust. If changes are made to specific portions of the revocable trust, this is done by amending the trust. If the revocable trust is changed or updated in its entirety, this is known as a restatement of the trust. The Grantor may also terminate or revoke the trust, and take the trust assets back into the Grantor’s ownership, which is why it is called a revocable trust. The Grantor’s other powers include the ability to add assets to the revocable trust and remove assets from the revocable trust as he or she sees fit at any time.
- Revocable Trusts Become Irrevocable At The Death of the Grantor
The Grantor’s special powers end at the Grantor’s death, and the revocable trust becomes irrevocable. This means no one may revoke or change the terms of the trust. The Trustee must manage and distribute the assets held in the trust as directed by the terms of the trust as they exist at the Grantor’s death.
- Revocable Trusts Are a Way to Avoid Probate
Assets that are held in a revocable trust at the Grantor’s death avoid the expensive and time-consuming court process of probate. Avoiding probate by holding an asset in trust is accomplished by titling the asset in the name of the revocable trust, or designating the revocable trust as the recipient of the asset at the death of the Grantor (i.e. by beneficiary designation). The estate planning attorney who prepares a revocable trust for you should provide you with recommendations about how your trust should be funded based on the types of assets you own and your distribution instructions. However, in the event an unknown or unexpected asset is discovered after the Grantor’s death and must go through probate, it is wise to prepare a Will along with the revocable trust to capture that asset and direct it to “pour over” into the revocable trust for management and distribution.
- Control of Distribution of Assets After Death
A revocable trust allows the Grantor to control the manner and timing of distribution of the trust assets to the Beneficiaries after the Grantor’s death. The trust distribution directions may be simple or complex depending on the Grantor’s financial situation, family relationships and wishes. For example, if the Grantor is concerned that a Beneficiary may get divorced or has significant debt, the Grantor may direct the Trustee to retain the Beneficiary’s share in trust for the Beneficiary’s lifetime to protect the funds. Revocable trusts also may serve as an estate tax savings tool for married couples. However, revocable trusts are not useful for the purpose of long-term care planning and do not protect your assets from having to be spent down prior to eligibility for Medicaid (MassHealth) benefits.
If you are in the early stages of estate and trust planning and interested in creating a revocable living trust, work with an experienced estate planning attorney who should explain the advantages and disadvantages of a revocable trust based on your particular situation and work with you to determine if a revocable trust is appropriate to achieve your estate planning goals.
Attorney Abigail V. Poole is an associate attorney with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is an active member of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (NAELA). This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.