Revocable Trusts

     A revocable trust, a popular estate planning tool that may serve useful asset management functions during a client's lifetime, is primarily used as a convenient and efficient means of distributing assets upon death.  In California, a trust is completely revocable by the client unless it is expressly made irrevocable by the trust itself.  A person who creates a trust for his or her own property is called a 'settlor'.  Although the settlor will transfer the legal title of assets to the trust, the IRS will still treat the settlor as the taxable owner because the settlor still has complete control over the property - he or she may revoke the trust at any time.  (An irrevocable trust, which places assets permanently outside the control of the settlor, does have tax consequences).  When a settlor dies, the revocable trust immediately becomes irrevocable (the settlor is no longer able to revoke it) and the trust entity will begin paying taxes on the assets.

Advantages

   1.  Probate avoidance.  All assets that are transferred to a revocable trust before a settlor's death are not considered 'owned' by the decedent (even though the IRS taxed them as if they were) and thus are not subject to probate.  A Pourover will, used with a revocable trust, transfers all remaining property into the trust.  As long as the value of assets outside of the trust stay below a certain amount (currently $150,000), the pourover will may also avoid probate.

     2.  Privacy

     3.  Trust is effective during life.  There is very little delay when a successor trustee takes over the duties of managing a trust.

Disadvantages

     1.  Expense.  Revocable trusts are often more expensive to draft than simple wills.

     2.  Less court supervision.