Revocable trusts, also known as living trusts, are increasingly popular. They can serve two main purposes:
* Probate avoidance. Assets held in trust are not subject to the time and expense of probate. They’ll stay in trust at your death or pass to heirs you’ve named in the trust document.
* Incapacity planning. If you become unable to manage your finances, a successor trustee can take over management of the trust assets. There will be no need for a guardianship hearing.
In the meantime, while you are capable you can be the trustee, in control of the trust assets. You can collect any investment income generated by those assets. If you should change your mind, you can revoke the trust and take back the trust assets into your own name.
In order to get these benefits, you must re-title assets so that they belong to the trust and not to you directly. You also must realize that a revocable trust won’t provide any tax benefits. You’ll owe income tax on any investment income and the trust assets will be in your taxable estate.