What Is a Revocable Living Trust and Do You Need One?
A revocable living trust is one of the most commonly recommended estate planning tools. It can provide privacy, avoid probate, and offer flexibility in how your assets are managed and passed on. But while it offers some advantages, it’s important to understand its limitations and know where it fits within your overall estate planning strategy.
Revocable Living Trusts are can be one component of a greater estate planning strategy including:
- Your Last Will and Testament
- Financial Powers of Attorney
- Beneficiary Designations
- and, Asset Titling
What is a Revocable Living Trust?
A revocable living trust is a legal arrangement you create during your lifetime to manage and distribute your assets. Effectively, it is an entity that lives beyond your own life and follows your instructions for assets placed in it.
Here’s how it works:
- You are the grantor which means you create the trust and place assets into it.
- You are the trustee which means you manage the trust assets while you’re alive and well (though you can appoint someone else if desired).
- You are a beneficiary which means you can use and spend the trust assets freely during your lifetime, just as if they were titled in your own name. While other beneficiaries may be named (such as a spouse or child), you retain full access and control over the assets while you are alive and competent.
- You retain full control: The trust is revocable, meaning you can change or dissolve it at any time.
At death, your designated successor trustee steps in and distributes the trust assets according to your instructions—without the need for probate court.
✅What Can Revocable Trusts Do?
A revocable trust can offer several key benefits:
Avoid Probate
Assets titled in the name of the trust pass directly to your beneficiaries without going through probate, which can be public, expensive, and time-consuming.
Provide Privacy
Unlike a will, which becomes public record after death, a trust remains private. Your estate details and beneficiaries are not disclosed publicly.
Plan for Incapacity
If you become incapacitated, your successor trustee can manage your assets on your behalf without the need for a court-appointed guardian or conservator.
Support Complex Distribution Plans
You can structure how and when beneficiaries receive assets—for example, staggered distributions over time or setting up subtrusts for minors or individuals with disabilities.
Allow Ongoing Asset Management
A trust can remain in place after your death to manage assets for young children, special needs family members, or even to oversee charitable giving.
Out of State Property Management
If you own real estate out of your resident state, your estate representative will have to go through each states probate process to settle each piece of property. A revocable living trust owning the property can reduce the number of probates that need to be completed.
❌What Revocable Trusts Do Not Do
Despite its usefulness, a revocable living trust is not a cure-all:
It Doesn’t Avoid Estate Taxes
Because the trust is revocable, all assets are still considered part of your taxable estate.
It Doesn’t Provide Income Tax Benefits
As a grantor trust, any investment income whether from dividends, capital gains, or interest are passed directly to you and your tax return. There are also no charitable tax benefits related to this trust.
It Doesn’t Protect Against Creditors or Lawsuits
During your lifetime, the assets remain accessible to your creditors because you still legally control them. It can even allow a much longer timeframe for creditors to make claims after death!
It Doesn’t Protect Help in Medicaid Planning
Assets in revocable trusts are countable for Medicaid Planning which means they are still subject to asset limits.
It Doesn’t Replace All Other Planning
You still need a will (often called a “pour-over will”), powers of attorney for finances and healthcare, and potentially other documents like a HIPAA release.
It Requires Maintenance
Simply creating the trust is not enough. You must fund the trust—meaning, you have to retitle your accounts and property in the name of the trust. Unfunded trusts are a common (and costly) planning failure.
It Doesn’t Work with Common Assets
Retirement accounts such as 401k’s, Traditional IRA’s, and Roth IRA’s have to remain in your name, not the trusts, to retain their tax benefits during your lifetime. If you retitle these accounts, they will have immediate tax consequences.
Be Wary of Trust Mills
Some companies—often called “trust farms” or “trust mills”—offer revocable trusts at low prices or through high-pressure sales seminars. They often emphasize the risks of probate to scare people into buying legal documents that may not be well tailored to their needs.
🚩Common Red Flags:
- One-size-fits-all documents that don’t reflect your personal goals or family situation.
- Non-attorneys selling legal documents or conducting estate planning reviews.
- High-pressure tactics that rush you into a decision.
- Bundled products, like insurance or annuities, sold in conjunction with the trust.
- Failure to fund the trust—some don’t help you move assets into the trust, rendering it ineffective.
A good estate plan is more than just a stack of documents. It should reflect your values, goals, and circumstances—and be part of an ongoing conversation with a qualified professional.
Summary
Revocable Living Trusts can play a critical role in your estate plans but it is important to understand where it fits in your overall strategies. While there are some benefits that cannot be replicated without a trust, many of the benefits can be replicated with proactive planning and management.
See What Revocable Living Trusts Do – And Can Other Tools Do It Too? – Gilbert Wealth