How a revocable trust works

The property in a revocable living trust is part of your taxable estate, but is not subject to probate. Avoiding probate means the property passes directly to trust beneficiaries without court involvement — one of the primary advantages of setting up a living trust.

A revocable trust can hold virtually anything — stocks, bonds, bank accounts, real estate, or personal property. One of the most important uses of a revocable living trust is to hold real estate you own in a state that isn’t your legal residence. If the property remains in your probate estate, it may be subject to probate in both the state where you live and the state where the property is located. That creates added expense and delay in settling your estate.

Once the trust documents are drawn up and signed, you, asgrantor, fund it by transferring the assets you’re moving to the trust. You generally contact your bank, brokerage firm, or mutual fund company to retitle your accounts in the trust’s name and arrange with your attorney to change the title to any real estate or similar assets.



Even if you have a living trust, you still need a will. The trust distributes only property you’ve put into it. A will is required to cover any newly acquired assets as well as personal property you have not transferred to the trust. If you wish, your will can be a simple document that “pours over” any remaining assets into the living trust. Then all of your assets will be distributed according to the trust provisions.

Buyer beware: Revocable living trusts

Revocable living trusts have become popular estate planning tools in recent years. While legitimate living trusts you set up with your lawyer can help you avoid probate and achieve other goals, part of their popularity is due to aggressive marketing on the part of living trust promoters who often introduce the products at lunch gatherings aimed at senior citizens or in other high-pressure pitches. They frequently overstate the cost and length of the probate process in an effort to scare people into buying their products.

The Federal Trade Commission (FTC), the Financial Industry Regulatory Authority (FINRA), and other groups have issued warnings to consumers about living trust promoters and their cookie cutter approach to estate planning.