Revocable Trust – Definition

Cite this article as:"Revocable Trust – Definition," in The Business Professor, updated September 10, 2019, last accessed October 28, 2020, https://thebusinessprofessor.com/lesson/revocable-trust-definition/.

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Revocable Trust Definition

A revocable trust is a type of trust in which the grantor can alter or cancel the trust. A trust is a fiduciary relationship in which a grantor or trustor gives an individual (the trustee) some assets to manager on behalf of a beneficiary who is a third party. The grantor however earn income from the assets until the property is passed down to the beneficiary upon the death of the grantor.

In a revocable trust, the greater can cancel or modify the provisions of the trust. Grantors often use revocable trust for the purpose of flexibility and the ability to amend the provisions of a trust when they want to do so.

A Little More on What is a Revocable Trust

A revocable trust allos a granor to modify the provisions of a trust, the trust can also be revoked if the grantor desires to do so. A revocable trust can be used when assets or properties are given to a trustee to manage  on behalf of a third party, the beneficiary. During the life-span of a trust, if the grantor decides to cancel some of its provisions or modify them, the trust has been revoked.

Characteristics of a Revocable Trust

There are certain qualities of the revocable trust, an important characteristic is that it is a fiduciary trust involving three parties, a trustee, a trust grantor and the beneficiary. In this type of trust,  a property or asset is being held in trust for the benefit of a beneficiary who is the third party. The principal of a revocable trust could also be the money or property the trustee holds, the principal can increase or decrease due to the appreciation or depreciation of the investment. Another important characteristic of a revocable trust is that it can have more than one beneficiary which is why probate is not allowed in a revocable trust.

Advantages of a Revocable Trust

The advantages of a revocable trust include the following;

  • A revocable trust allows for flexibility whereby the granter can modify or revoke the provisions of the trust.
  • In a revocable trust, the manager or trustee assigned by the grantor takes control of the principal.
  • A revocable trust also allows the assets belonging to a beneficiary that us not of age to be held in trust rather than assigning a guardian.
  • In the case of misappropriation of funds and assets by a beneficiary, a revocable trust can be adjusted to allow a distribution of a fixed amount of money on a regular basis.

Disadvantages of a Revocable Trust

The disadvantages of a revocable trust include the following;

  • A revocable trust is time-consuming when it comes to implementation. It also requires much effort on the part of the trustee and the grantor. For instance, the assets or properties of the grantor must be monitored frequently to ensure that the desires are met and if they are not, the provisions of the trust can either be modified or revoked.
  • Maintaining and managing a revocable trust requires much money.
  • The grantor has no tax benefits in a revocable trust.
  • In order to avoid probate, the grantor is required to designate other beneficiaries.

References for “Revocable Trust

https://www.investopedia.com/terms/r/revocabletrust.asp

https://www.thebalance.com › … › Estate Planning › Understanding Trusts

https://napkinfinance.com/napkin/revocable-vs-irrevocable-trusts/

https://smartasset.com/retirement/what-is-a-revocable-living-trust

https://www.financialsamurai.com/revocable-living-trust-benefits/

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