What Is a Revocable Trust? Understanding the Basics of Living Trusts

Estate planning is about more than deciding who receives your assets when you pass away — it’s about creating a smooth process that protects your loved ones and your wishes. One of the most flexible tools available is a revocable living trust. But what exactly is a revocable trust, and is it right for you? 

This article explains what a revocable trust is, how it works, the benefits and disadvantages, how it compares to an irrevocable trust, and what to consider before setting one up. 

What Is a revocable living trust?

A revocable living trust, often shortened to “revocable trust”, is a legal arrangement where you (the grantor) transfer ownership of your assets into a trust while maintaining control of them during your lifetime. 

The term revocable means you can change or dissolve (“revoke”) the trust at any time. The term living trust or inter vivos trust means a trust that the grantor creates during their lifetime, as opposed to a testamentary trust which is created under a will. Thus, a revocable living trust is a trust created during the grantor’s lifetime and which the grantor can change or dissolve. 

In simple terms: 

• The trust holds your property 

• You (the grantor) control it while alive 

• Your chosen trustee manages or distributes it after your death 

How does a revocable trust work?

A revocable trust has three main parties: 

1. Grantor – the person who creates the trust. 
2. Trustee – the person (or institution) who manages the trust assets. 
3. Beneficiaries – those who receive assets from the trust. 

In most cases, the same person (you) will serve in all three of these roles when the revocable trust is initially created. You create the trust (grantor), control the trust (trustee), and benefit from the trust (beneficiary). You will always be the grantor, but, after your death, the trust will have a new trustee and new beneficiaries – all determined by you when the trust is created.  

When you create a revocable trust, you transfer ownership of assets (such as bank accounts, investments, or real estate) into it. Although the trust becomes the legal owner, you retain control. This means you can buy, sell, or use the property just as before. 

So, who owns the property in a revocable trust? Legally, the trust holds the title, but practically, you remain in charge while you’re alive in your capacity as the trustee. 

Benefits of a revocable trust

There are several key benefits of a revocable trust, especially for families planning ahead: 

• Avoiding probate: Assets in a trust avoid probate, which can save time, reduce court costs, and keep your estate private. 

• Estate planning flexibility: You can update beneficiaries, trustees, or terms as life circumstances change. 

• Managing property during incapacity: If you become ill or unable to manage your affairs, your chosen trustee can step in to manage the trust. 

• Privacy: Unlike a will, which becomes public record, a revocable trust generally remains private. 

• Real estate planning: Particularly useful if you own property in multiple states, since it avoids probate in each jurisdiction. 

• Income tax simplicity: A revocable trust is not a separate tax entity during your lifetime. Its assets are still considered yours for income tax purposes, and you continue filing taxes as usual. 

Disadvantages of a revocable trust

While useful, revocable trusts are not perfect. Some disadvantages of a revocable trust include: 

• No protection from creditors: Because you maintain control of the trust, creditors can still make claims against its assets, just as if the assets were still titled in your name. 

• Costs and maintenance: Drafting and funding the trust can be more expensive and time-consuming than writing a will. Assets need to be retitled into the trust, which some people overlook. 

• Estate tax considerations: Because you still control the trust assets, they will be included in your gross estate. 

• Need for a “pour-over will”: Even with a revocable trust, a “pour-over will” should still be drafted as a failsafe to “catch” any assets that were inadvertently not placed in the trust. The pour-over will directs these missed assets (if any) into the trust, but this requires probate. This is why it is critical to fund a revocable trust after it is created. 

Understanding the differences between revocable trusts and irrevocable trusts

Revocable Trust  Flexible and amendable  Grantor retains control of assets  No separate income tax reporting  No creditor protection  No estate tax reduction  Commonly used and appropriate in a wide range of situations	Irrevocable Trust  Cannot be easily changed once created  Control given to trustee  May require a separate income tax return  Provides creditor protection  May remove assets from taxable estate  More limited applicability and generally used to address specific issues such as Medicaid planning, estate tax exposure, and high creditor risk
In short, a revocable trust is best for flexibility and probate avoidance, while an irrevocable trust is designed for asset protection and tax planning.

 How to set up a revocable trust

Creating a revocable trust requires careful planning and professional guidance. Here are the general steps: 

1.  Consult an estate planning attorney to draft the trust document 

2. Choose a trustee (yourself initially, with a successor trustee for later) 

3. Retitle assets into the trust (bank accounts, investments, deeds for real estate) 

4. Name beneficiaries who will receive the assets after your death 

5. Maintain and update the trust as life circumstances change 

 One of the most common mistakes is failing to properly fund the trust. Without transferring assets into it, the trust provides little benefit. 

Frequently Asked Questions About Revocable Trusts

Q: What is a revocable living trust? A: It’s a legal arrangement where assets are placed in a trust you control during your lifetime, then pass directly to beneficiaries upon death.  Q: Who owns the property in a revocable trust? A: The trust holds legal title, but you retain control and can use, sell, or manage the assets as the trustee.  Q: Do revocable trusts protect against creditors? A: No. Because you control the assets, they are still subject to creditor claims.  Q: Do I need to file a separate tax return for a revocable trust? A: No. Income is reported on your personal tax return while you’re alive.  Q: What is a non-revocable trust? A: This refers to an irrevocable trust, which cannot be easily changed and provides asset protection and estate tax benefits.

Is a revocable trust right for you?

A revocable trust is a flexible, living estate planning tool that helps you manage your property, avoid probate, protect your loved ones, and designed to provide a smooth management of assets in case of incapacity. While it doesn’t shield assets from creditors or reduce estate taxes, it remains one of the most effective and widely used ways to help simplify the transfer of property and maintain control during your lifetime. If you’re not a client and would like to know if a revocable trust is right for you, let’s talk.