Legal Definitions - Revocable living trust

A revocable living trust is a legal arrangement created by an individual (often called the "settlor" or "grantor") during their lifetime to hold and manage their assets. The defining characteristic of this type of trust is that the settlor retains the power to change, modify, or completely cancel (revoke) the trust at any point while they are alive and mentally competent. This means they can add or remove assets, change beneficiaries, or even dissolve the trust entirely and regain full ownership of the assets. Upon the settlor's death, the trust typically becomes irrevocable, meaning its terms can no longer be changed, and the assets are then managed and distributed according to the instructions laid out in the trust document.

• Example 1: Adapting to Financial Changes

  Sarah, a successful entrepreneur, establishes a revocable living trust and places her investment portfolio and a rental property into it, intending for these assets to benefit her two children after her passing. A few years later, she decides to launch a new business venture and needs significant capital. Because her trust is revocable, Sarah can easily amend the trust document to remove the rental property, sell it, and use the proceeds to fund her new business, without needing court approval or complex legal procedures. She then has the option to add new assets to the trust later or adjust the distribution plan for her remaining investments, demonstrating the flexibility of a revocable trust during her lifetime.

• Example 2: Evolving Family Circumstances

  Mr. and Mrs. Chen create a revocable living trust to hold their primary residence and savings, naming their three adult children as beneficiaries. Their goal is to avoid probate and ensure a smooth transfer of assets. Five years later, their eldest daughter has a child, making them grandparents. The Chens decide they want to include their new grandchild as a future beneficiary or set aside a specific amount for their grandchild's education. Since their trust is revocable, they can simply work with their attorney to amend the trust document to reflect these new family wishes, adding the grandchild as a beneficiary without having to create an entirely new estate plan, showcasing their ability to modify their estate plan as life unfolds.

• Example 3: Maintaining Control Over Assets

  David, a retiree, sets up a revocable living trust and transfers ownership of his vacation home and a significant portion of his stock investments into it. He wants to ensure these assets are managed for his benefit during his lifetime and then pass efficiently to his chosen beneficiaries upon his death. However, a year later, he decides he wants to sell the vacation home and use the funds to purchase a smaller condo closer to his family. Because the trust is revocable, David maintains full control. He can instruct the trustee (who might even be himself) to sell the vacation home, remove it from the trust, and then either keep the proceeds outside the trust or place the new condo into the trust, demonstrating his ongoing ability to manage and modify his assets as he sees fit without losing access or control.