A revocable living trust is created under a document called a Declaration of Trust (or Trust Agreement). This Declaration creates and sets forth the terms of a trust created by yourself as “trustor,” by which a trustee you select (typically, you yourself) holds and manages property in such trust for the benefit of your beneficiary(ies). In a “typical” revocable living trust, you are the primary beneficiary so long as you are living. Your trust is “revocable,” in that you as the Trustor have the power to change the terms or terminate your trust at anytime while you are alive. It is “living,” in that you created it while you were alive.
Concurrently, upon your creating a revocable living trust you must also transfer certain important assets into your trust. This process is called “funding” your trust. For example, you, through the assistance of your estate planning attorney, will transfer your house from yourself, as an individual, into yourself, as trustee of your trust. With this kind of trust, while you are living, you continue to pay your annual income taxes using your regular individual tax return forms — not trust tax return forms. Upon your death, what had previously been your revocable living trust will automatically be converted into an irrevocable trust. Thus, one can’t change the terms of your trust once you die (or, if you are married, upon the death of the survivor of you).
A revocable living trust is the most flexible and most all-encompassing device for passing on your estate on your death, since all types of property, real and personal, can be transferred into it, and be passed on to the beneficiary(ies) you have designated therein to receive such property — either in the form of cash, specific properties, or percentage interests in your trust estate. Further advantages of such a trust are that, following your death, your beneficiary will receive legal title and possession to the property to which he or she is entitled much sooner than if your estate had to go through probate, where instead of a trust you left a will or died with no trust or will (called dying “intestate”), and with much less expense than would be incurred in a probate.
As a general rule, to avoid probate if you own a home and/or other real property, you should create a revocable living trust and transfer at least such real property into your trust as well as your financial assets; except that, typically, individuals and not your trust should be designated as your beneficiaries of any IRA’s and/or retirement plans you may own.