A revocable trust is a document (the “trust agreement”) created by you to manage your assets during your lifetime and distribute the remaining assets after your death. The person who creates a trust is called the “grantor” or “settlor.” The person responsible for the management of the trust assets is the “trustee.” You, as the client, can serve as trustee, or you may appoint another person, bank or trust company to serve as your trustee. The trust is “revocable” since you may modify or terminate the trust during your lifetime, as long as you are not incapacitated. A revocable trust is a tool that allows clients to avoid probate.
During your lifetime the trustee invests and manages the trust property. Most trust agreements allow the grantor to withdraw money or assets from the trust at any time, and in any amount. If you become incapacitated, the trustee is authorized to continue to manage your trust assets, pay your bills, and make investment decisions. This may avoid the need for a court-appointed guardian of your property. This is one of the advantages of a revocable trust.
Upon your death, the trustee (or your successor if you were the initial trustee) is responsible for paying all claims and taxes, and then distributing the assets to your beneficiaries as described in the trust agreement. The trustee’s responsibilities at your death are discussed below.
In order to get the maximum benefit from your trust, your assets, such as bank accounts, real estate and investments, must be formally transferred to the trust before your death.The process of retitling certain assets in the name of the trust is called “funding” the trust and requires changing the ownership of the assets to the trust. A trust is a probate avoidance tool and assets that are not properly transferred to the trust may be subject to probate. However, there are certain assets should not be transferred to a trust because income tax problems may result.