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Understanding the basics of a revocable trust

Many people avoid estate planning altogether because it tends to be an uncomfortable subject. Other people may tackle estate planning head-on but rely primarily on a will as the way to ensure that their wishes are carried out upon their deaths. There are some things that a will cannot do, however, that trusts can--and these things are often beneficial to the owner of the trust.

A revocable trust is also known as a living trust, and it carries this name because it is created while a person is alive. Revocable living trusts allow the owners of the trust to change, amend, or revoke it whenever they wish. This revocabilty has both benefits and detriments. On the positive side, a revocable trust gives the owner important flexibility to change the trust if the owner's needs or desires change during his or her lifetime. However, because the trust remains manipulable, it continues to be counted as part of the owner's estate, which means that estate taxes will be assessed on the property contained in the trust.

The trust must have a trustee, which can be the trust owner himself, and the trustee has the responsibility of managing the trust for the owner's benefit. Once the owner of the trust passes away, the trust assets will be distributed to the deceased's beneficiaries by the trustee, without having to go through probate. In that way, a trust can function similar to a will. Different from a will, however, a trust also provides a way for a person to manage property during his or her lifetime and establish for management by a trustee should the owner become incapacitated, which can help ensure that the trust assets will continue to benefit the owner of the trust even when he or she is no longer capable of exercising control to his or her own benefit.

Source: American Bar Association, "Revocable Trusts: What is a Revocable Living Trust?," last accessed Oct. 5, 2014

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