Revocable Living Trust 101: What Is a Revocable Living Trust?
Learn everything you need to know about revocable living trusts, including how they work, key terms, how to set one up & how they compare to wills in this guide.
More Than a Death Plan
A revocable living trust protects you while you’re alive, too, covering incapacity, avoiding probate, and keeping your affairs private.
Change Your Mind Anytime
Unlike an irrevocable trust, a revocable living trust stays flexible for as long as you’re alive and able to manage it
Trust vs. Will: What's the Real Difference?
We break down which one actually keeps your family out of probate court before you decide.
What Is a Revocable Living Trust?
At the most basic level, a revocable living trust — also called simply a revocable trust — is a written legal document that determines how your assets will be handled during your lifetime and after you die. You create it while you’re alive, and unlike a testamentary trust, it can take effect immediately. What sets it apart from many other estate planning tools is that you can change or cancel its terms at any time, which is where the term “revocable” comes from.
Assets commonly placed into a revocable living trust include:
- Real estate
- Bank accounts
- Investment and brokerage accounts
- Business interests
- Vehicles
- Valuable personal possessions (jewelry, art, collectibles)
- Life insurance policies
- Retirement accounts (in some cases)
- Digital assets
- And more
Once assets are transferred into the trust, they’re managed according to its terms during your lifetime and distributed to your named beneficiaries after your death.
Basics of a Revocable Living Trust
A revocable living trust covers three stages of your life: while you’re alive and well, while you’re alive but incapacitated, and after your death. If you become incapacitated, your named trustee can step in and manage your affairs automatically, without the need for a court-appointed conservator. This is one of the key advantages a living trust has over a will, which only takes effect after you pass.
Revocable trusts also come with a lesser-known perk: FDIC deposit insurance on a revocable trust account extends up to $250,000 per named beneficiary, rather than just $250,000 total, which can meaningfully increase the amount of protected cash you can hold.
Revocable Living Trusts & Taxes
Taxes are one of the biggest differences between revocable and irrevocable trusts, and they’re worth understanding before you decide which is right for you.
- Income Tax: Because the assets in a revocable trust are still legally yours, any income they generate is reported on your own personal income tax return, just as if you owned the assets directly.
- Estate and Inheritance Tax: Assets in a revocable trust remain part of your taxable estate, so estate and inheritance taxes apply the same way they would if the assets were held in your own name.
- No Separate Tax ID: A revocable trust uses your own Social Security number rather than its own taxpayer ID, unlike an irrevocable trust, which typically must file its own tax return.
Who Needs a Revocable Living Trust?
Short answer: anyone who wants more control over how their estate is handled, not just the wealthy. Financial expert Suze Orman has said that everyone needs a revocable trust, since it does far more than simply direct where your assets go after death, it also plans for incapacity while you’re alive.
Revocable living trusts are especially useful for people with more complex estates, property in multiple states, or a desire for privacy, since trust distributions don’t become part of the public record the way a will does. They’re also a popular choice for people who are just starting their estate planning and aren’t yet certain who they want to name as beneficiaries, since the terms can be changed later.
How to Create a Revocable Living Trust in 12 Steps
Setting up a revocable living trust requires more upfront work than writing a simple will, but it typically pays off for your beneficiaries later. Here’s how to do it.
- Inventory your assets. List everything you might place into the trust, from real estate to investment accounts.
- Decide who will inherit your assets. Identify your beneficiaries and how you’d like your assets divided among them.
- Choose your trustee and successor trustee. Decide who will manage the trust, both now and after you no longer can.
- Consult an estate planning attorney. Work with a professional to draft a trust document that reflects your state’s laws and your wishes.
- Sign and execute the trust document. Formally establish the trust so it’s ready to receive assets.
- Fund the trust by retitling your property. Common assets to transfer include:
- Real estate deeds
- Bank and investment accounts
- Business interests
- Update beneficiary designations where needed. Contact banks, insurers, and transfer agents so the trust is reflected as owner.
- Retitle vehicles and other titled property. Issue new titles in the name of the trust where appropriate.
- Establish a pour-over will. This adds any assets you forgot to transfer to the trust after your death.
- Store your trust documents safely. Keep the signed trust, deeds, and related paperwork where your trustee can find them.
- Notify your successor trustee and beneficiaries. Let them know the trust exists and where to find the documents.
- Review and update the trust periodically. Revisit it after major life events like marriage, divorce, a new child, or a significant change in assets.
