A trust is a separate legal entity for holding and investing property. One or more persons (the “trustee”) holds property, usually real estate or investments, for the benefit of another or several other people (the “beneficiary”). The person who gives the property to fund the trust is called the “settlor,” “donor,” or “grantor.” The trustee holds legal title or interest and is responsible for managing, investing, and distributing the assets or property of the trust in accordance with the terms of the trust. The beneficiary holds an equitable or beneficial interest.
A revocable trust is sometimes referred to as a “living” or “inter vivos” trust. Such a trust is created during the life of the settlor rather than through a Will. With a revocable trust, the settlor maintains complete control over the trust and may amend, revoke, or terminate the trust at any time. Therefore, the settlor is able to reap the benefits of the trust arrangement while maintaining the ability to change the trust at any time prior to death. Because property in a typical revocable trust is fully available to the settlor, the property in the trust is fully countable for purposes of determining Medicaid eligibility, and thus not “sheltered” from nursing home costs. Even though probate is not necessary as to assets held in the name of the trust on the settlor’s death, assets owned individually by the settlor which do not pass by joint ownership or beneficiary designation are subject to probate.
Depending upon your situation, there can be several advantages to establishing a revocable trust. The most well-known (and perhaps oversold) goal is avoiding probate. That is, any property in the trust prior to the settlor’s death passes to the beneficiaries by the terms of the trust without requiring probate. This may save time and money for the beneficiaries. Unfortunately, many clients end up dying with assets that were not transferred into the trust during their lifetime and therefore still end up having a probate estate.
Trusts are private documents and only those with a direct interest in the trust need know of trust assets and distribution. If well drafted, another advantage of revocable trusts is their continuing effectiveness even if the settlor dies or becomes incapacitated.