Revocable Living Trust

A Revocable Living Trust (RLT) is the primary vehicle for avoiding probate while maintaining control over your assets. You act as the grantor, trustee, and beneficiary during your lifetime. The trust is revocable, meaning you can amend or terminate it at any time. Because you maintain control, the trust is ignored for income tax purposes; all income, deductions, and credits are reported on your individual tax return (Form 1040) under grantor trust rules ( IRC §671).

Upon your death or incapacity, a successor trustee of your choosing assumes administration of the trust. The assets transfer to your beneficiaries according to the trust’s instructions, bypassing probate entirely.

Table 23.2: Pros and Cons of a Revocable Living Trust

Advantages Disadvantages Advantages Disadvantages Bypasses probate, allowing rapid distribution of assets to heirs Requires active funding: assets must be re-titled in the name of the trust to be protected. Unfunded assets are subject to probate. Maintains privacy; the trust agreement and asset inventory are not public records No direct tax shelter: does not reduce federal or state estate tax liabilities. Enables flexible, structured distributions (e.g., age milestones, HEMS standards) Administrative setup cost: A comprehensive estate plan (RLT, pour-over will, healthcare directive, financial power of attorney, and funding documents) typically ranges from $5,000 to $25,000 depending on asset complexity and entity structures. Reduces the risk of post-mortem contests compared to a will Integrates with incapacity planning via durable powers of attorney Integrates with incapacity planning via durable powers of attorney

An RLT is particularly beneficial if you own real estate in multiple states (avoiding ancillary probate), wish to defer distributions to heirs until they reach maturity (e.g., distributing principal at ages 25, 30, and 35), or want to shelter assets for a surviving spouse while protecting the ultimate inheritance of your children.