While people may have heard of a revocable living trust, they may not be exactly certain of what the term means or how such a trust functions. Trusts may generally be divided into two broad categories, including revocable living trusts and irrevocable trusts.
Revocable living trusts are established during the grantor's lifetime. The grantor may revoke or change the terms of the trust whenever he or she wishes, giving this type of trust its name. Since the trust is a revocable one, it does not enjoy the same ability to avoid estate taxes.
Revocable trusts are often set up in order to help a grantor manage his or her assets in the event he or she becomes ill or disabled. They can help pass assets after the grantor's death by avoiding the probate process. With these trusts, a trustee will be appointed to manage the assets and distribute them according to the trust's terms. By contrast, irrevocable trusts may not be changed or altered by the grantor and may be established to take effect upon the grantor's death in order to avoid estate taxes and to pass assets outside of the probate process.
A revocable trust has its advantages, as it allows a greater degree of flexibility. People who are engaged in estate planning may want to discuss different types of trusts with their estate planning attorney. An attorney may be able to provide guidance about the types of trusts best suited to meet their clients' estate planning goals and situations. In large and complex estates, an attorney might recommend utilizing various types of trusts, wills and other estate documents in order to minimize tax liability and probate fees while passing assets to the grantor's intended beneficiaries. People who have questions may thus want to speak with an attorney.