Revocable trusts, also referred to as Living Trusts or Inter Vivos Trusts, are a power estate planning tool. Revocable Trusts have the following advantages over the use of wills alone: the avoidance of probate, privacy, the elimination of court supervision, simplicity of amendment, and potential for to act as limited conservator for instances of incapacity. A revocable trust, created and managed by the donor during his or her life, may include provisions regarding distribution of the donor’s assets after the donor’s death.
During his or her life, the donor will hold the position as trustee of the revocable trust and within the body of the trust, name a successor trustee or trustees to serve following the donors death. The revocable trust can be revoked or amended by the donor during his or her lifetime. According to the Massachusetts Uniform Trust Code, the trust will be considered revocable, and thus amendable by the donor, unless or until the trust is amended to expressly provide that the trust is irrevocable. In terms of ease, trust amendments do not normally require the formalities of a Codicil to a Will.
A revocable trust can be utilized and funded by the donor during the donor’s life, or can be part of the donor’s estate plan and accept funding from sources upon the death of the donor. Normally, when the trust is funded upon death, there will be a corresponding “pour over” clause in the will directing the donor’s probate assets into the trust. The benefit to this “pour-over” revocable trust is that, contrary to a testamentary trust (one contained within the body of the will), the revocable trust is not subject to ongoing oversight by the probate court.
One of the most prevalent questions I receive is how do I avoid probate? If the trust is funded during the donor’s life (and not as a pour-over vehicle after death), any assets owned by the trust will not be included in the donor’s probate estate and not subject probate administration. In this situation, the assets will expeditiously flow directly to the intended beneficiary without the need for an interim appointment of a personal representative. Additionally, the named beneficiaries, nature and value of the trust assets and how the donor intended distribution of those assets will remain private and outside the probate court permanent public record. While it is nearly impossible to completely avoid probate, the use of a revocable trust can limit the assets inclusion in the decedent’s probate estate.
While revocable trusts are a powerful estate planning tool, assets within that trust are still considered the property of the decedent and thus will be included in any calculation for purposes of both income and estate tax purposes. Thus, a standard revocable trust does not provide a donor with creditor protection, either from general creditors or from a spouse.