What is a revocable living trust?

When planning for the future, you are thinking through the financial stability of your loved ones as well as your own. A trust is a popular estate planning tool that lets you determine how your assets will be managed as you age and how you'll provide for your family members after you're gone.

A revocable living trust, in particular, can be an efficient way to protect your assets and ensure your loved ones inherit them on your terms, while letting you take care of your present needs and adapt to whatever may lie ahead.

A revocable living trust is a type of trust that you can modify or even cancel. It's considered "living" because you can put assets into it—like real estate, financial accounts, securities and personal property—that you can still access during your lifetime.

To create a revocable living trust, you sign a written document. The trust requires someone to make decisions, so you'll pick a trustee to administer it. Most people name themselves initially because it's simpler to manage, but you must select a successor trustee to step in if you can no longer act or after you pass away. The trustee will be able to spend, sell or dispose of the trust’s assets as they choose, but only according to the terms of the trust you create.

During your lifetime, or until you revoke—or cancel—the trust, the assets are owned by the trust. After you pass away, the assets in the trust will be distributed to your beneficiaries. This transfer can happen immediately, but you are also able to place conditions that have to be met before the beneficiary gets the assets. For instance, if you're leaving assets to your children, it is not uncommon to specify a certain age in order for them to gain unfettered access to their share.

A revocable living trust has many benefits that make it a popular estate planning tool, including:

• Retaining privacy and avoiding probate. With a trust, the assets and beneficiaries involved are completely private. You won't have to publicly disclose what you own, what it's worth or who is going to own it after you pass. This is very different from a will, which will become a public record when it's filed with the court and subject to a lengthy probate process. Avoiding probate saves a lot of red tape and legal fees, and ensures privacy.

• Maintaining control. A trust can ensure your selected trustee is in charge of how and when your beneficiaries receive assets. You can set up conditions, disburse assets slowly over time or allow them to transfer immediately upon your death.

• Providing security and certainty. If you ever become incapacitated and have a successor trustee lined up, then you already know who will step in to administer your trust. This can help ensure piece of mind.

• Saving some costs. Although it's typically more expensive to create a trust, the legal costs of probating your assets through a court-administered process can be extensive. A revocable living trust can help you cut down on your overall estate administration related costs.

Living trusts have some drawbacks to consider:

• No tax advantages. Assets in a revocable living trust are still subject to regular income and, depending on the size of your estate, estate tax.

• No creditor advantages. Revocable trust assets can be accessed by creditors and count against you for Medicaid means testing.

• Higher start-up costs. Even though you may save on probate costs later, a trust is usually more expensive to set up than a simple will.

• Potential for omission. If you don't transfer assets into the trust correctly or overlook an asset you intended to include, they may not pass to your loved ones as you intended.

A trust can be part of your larger estate plan

A living trust is just one tool you can implement in your big-picture estate strategy. Find out how having a plan can set you up to achieve your goals.

Essential documents & checklist

A revocable trust can be freely adjusted as your life circumstances change. You always have control. By contrast, an irrevocable trust cannot be changed. Once you place assets into the trust, they're controlled by the terms of the trust, and the trust can't be canceled or closed. This permanent inability to take it back can seem detrimental, but irrevocable trusts can have significant advantages not available in a revocable trust such as protection from creditors and certain tax advantages.

Dive deeper: Revocable trusts vs irrevocable trust: Which type is right for you?

Before you create a revocable living trust, reflect on how you'd like to provide for your family and the causes you'd like to support. When you're ready, we strongly recommend that you work with an estate planning attorney. Before you finalize the document, consider your goals for managing your assets while you're alive and how you want them distributed after you pass away. Give considerable thought to who you want to be your trustee in case you become unable to make your own legal and financial decisions and after you pass away.

Once the revocable living trust is set up, it's crucial to officially transfer ownership of your assets to it as soon as possible. Until you do, the trust isn't considered functional and your estate plan will not be able to be carried out according to your wishes.

You can cancel your living trust with a written revocation or by simply destroying the trust document. It's important that when you do, you transfer any assets that have been titled in the name of the trust back to your own name.

There are many reasons why you might decide to revoke your trust:

• You undergo a major life change such as a divorce, particularly if your trust was held jointly.

• You arrange to transfer your assets upon death using other methods such as beneficiary designations or transfer on death documentation thus negating the need for a trust.

• You want to take your estate planning in a different direction, such as creating charitable trusts.

• You have several modifications—such as updating beneficiaries and creating new distribution terms—and it's easier to start over than to amend the original document.

A revocable living trust can offer many benefits, including privacy, control and predictability. It can help you feel more secure in your financial future than having a simple will, but it's just one potential piece of your larger financial strategy. There are different kinds of trusts, as well as other estate planning options, to think through.

Talking over your goals with a Thrivent financial advisor along with an estate planning attorney can help you decide whether a revocable living trust would be an appropriate tool. Your financial advisor will partner with Thrivent Trust Company, who offers professional trust and estate administration services.