A revocable living trust is a popular estate-planning tool that you can use to determine who will get your assets when you die.
Most living trusts are "revocable" because you can change them as your circumstances or wishes change, explains Ivory Johnson, a Washington-based certified financial planner and the founder of Delancey Wealth Management. Revocable living trusts are "living" because you make them during your lifetime, he explained.
Most people use living trusts to avoid probate. Probate is the court-supervised process of wrapping up a person's estate. Probate can be expensive and time consuming and is often more of a burden than a help. The assets in the revocable trust pass directly to your beneficiaries without going through probate upon your death.
Many people ask what the difference is between a revocable trust and an irrevocable trust, Johnson said.
What makes the revocable trust "revocable" is that the person who creates the trust (the grantor) can dissolve the trust at any point during his or her life.
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An irrevocable trust cannot be altered or dissolved after its creation without the permission of the trustee (the one responsible for the trust's assets) and all of the beneficiaries (the ones who receive support and money from the trust).
A living trust can provide you with the peace of mind that comes from knowing that your assets and your heirs will be protected in the event that you unexpectedly become unable to handle your own financial affairs, Johnson explained. This type of trust also offers a level of privacy.
To that point, a living trust is not made public upon your death; therefore, your estate will be distributed in private. (A will, for example, is public record, so all transactions will be public.)