What Is a Reversible Living Trust?

By Tom Streissguth

In order to shelter assets from the probate courts and taxation, many people choose to create a trust. In a trust, a grantor transfers property to the care of a trustee and names a beneficiary who will inherit the property. There are many different kinds of trust, but two main forms affect how a grantor may handle the assets. These are revocable (or reversible) and irrevocable.

In order to shelter assets from the probate courts and taxation, many people choose to create a trust. In a trust, a grantor transfers property to the care of a trustee and names a beneficiary who will inherit the property. There are many different kinds of trust, but two main forms affect how a grantor may handle the assets. These are revocable (or reversible) and irrevocable.

Irrevocable Trusts

With an irrevocable trust, the grantor gives up all control over the trust and its assets when he creates it. All decisions on handling the assets are made by the trustee, who must follow any direction or instructions that the trust contains. The grantor no longer has personal ownership of the assets the trust contains, and the assets are no longer a part of the grantor's estate for tax or probate purposes.

Protect your loved ones. Start My Estate Plan

Reversible Trust

A revocable trust is also known as a reversible living trust. As long as the grantor is alive and capable of handling his affairs, he keeps control over the trust and its assets by naming himself as the trustee. He can terminate the trust, transfer ownership of assets back to himself or distribute the assets to beneficiaries when he chooses. Assets within a reversible trust remain part of the grantor's estate for tax purposes, so there is no tax advantage.

Trustees and Probate

The most important advantage in a reversible trust is avoiding probate. In addition, a reversible trust allows control, as the grantor, who is also the trustee, can invest the assets, buy or sell property and distribute the income from the trust. If the grantor becomes incapacitated, the trust can appoint another trustee, if necessary, and still hold assets outside of the probate court process, which can save a considerable amount of money in legal fees and court costs.

Considerations

You can revoke a reversible trust at any time. You may also change the trust beneficiaries if you wish, or amend the distribution of assets. On the death of the grantor, the trust becomes irrevocable. Any assets outside of the trust will still be subject to probate, unless you have drawn up a back-up will to distribute these assets to your heirs.

Protect your loved ones. Start My Estate Plan
Taxes & the Advantages of Living Trusts

References

Related articles

The Difference Between a Grantor & a Beneficiary

Grantor is the legal term for a person who creates a trust, and beneficiaries are people named by the grantor to benefit from the trust by receiving the trust's property. The legal terms "grantor," "settlor," and "creator" have the same meaning and can be used interchangeably. A grantor and beneficiary have different roles in a trust, but either may serve as trustee of the trust. Although the grantor establishes a trust and may have the authority to change it, beneficiaries also have authority to amend or revoke the trust and take legal action to protect the trust in certain circumstances.

Living Trust Guidelines

A living trust is a way of managing assets, a tool used primarily in estate planning. It offers a number of advantages over a last will and testament, including greater flexibility in the management and distribution of your assets. Living trusts are governed by state laws and these laws differ slightly from state to state.

Rights of the Beneficiary of a Family Trust

A family trust is a trust in which the beneficiaries are family relations of the grantor. Since the assets of a revocable trust legally belong to the grantor, beneficiaries have no rights in trust assets that are not subordinate to the grantor's right to unilaterally revoke the trust. The assets of an irrevocable trust, by contrast, legally belong to the beneficiaries subject to the trustee's fiduciary authority. Trust beneficiaries enjoy certain rights under state law.

LegalZoom. Legal help is here. Start Here. Wills. Trusts. Attorney help.

Related articles

How Does a Living Trust Protect Assets?

Creating a trust to holds assets can help the grantor while he is alive and continue to serve him after his death. A ...

If the Deceased Has Property in a Trust, Can it Be Sold to Pay His Debts?

When you set up a trust, you transfer property and assets from yourself to the trust and to the management of a trust ...

How to Break an Irrevocable Trust

Two types of trusts are possible: a revocable trust and an irrevocable trust. Although the grantor can unilaterally ...

Is a Living Trust Liable or Subject to Probate?

A living trust holds assets that are managed by a trustee for intended beneficiaries. Also called a revocable trust, it ...

Browse by category
Ready to Begin? GET STARTED