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.

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.

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.

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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.

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References

Related articles

Tax Benefits of Irrevocable Trust

When you create a trust, you transfer your property and other assets into the care of a trustee. You can use a trust to transfer property to your heirs or to another person during your lifetime. A trust can also be used to shelter assets and income from creditors. An irrevocable trust, by definition, cannot be changed but carries some important tax advantages.

What Happens When a Trust No Longer Has Assets?

Trusts must adhere to specific requirements to be valid. All trusts, including living trusts and irrevocable trusts, must have trust assets, i.e. property, a trustee and beneficiaries. In general, when a trust runs out of assets, the purpose of the trust is considered fulfilled and the trust may be terminated. Depending on the circumstances, the trust may need to be officially dissolved by obtaining court approval.

What Are the Duties of a Successor Trustee for Administrating a Living Trust?

A successor trustee does not have any duties until the trustee can no longer perform his duties. A trustee is a person responsible for managing the affairs of a trust and distributing assets. There are two types of trusts: revocable and irrevocable. With a revocable trust, the person who created the trust, known as the grantor, retains control of the trust and can modify or terminate the trust at any time. The grantor typically is the trustee of a revocable trust. In contrast, the grantor cannot be the trustee of an irrevocable trust, which cannot be modified or terminated by the grantor without permission from all the beneficiaries.

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