Revocable Trust

Estate Planning.  A revocable trust is trust that could be amended and cancelled.  Revocable trusts are used primarily as probate avoidance devices.

A revocable trust is a trust that the person who creates it, generally called the settlor, can revoke during the person’s lifetime.  During the time a trust is revocable, the trustee of that trust owes his/her duties not to the beneficiaries listed in the trust, but to the settlors of the trust.  That is because the property transferred into a revocable inter vivos trust is considered the property of the settlor for the settlor’s lifetime and the beneficiaries’ interest in that property is merely potential and can evaporate in a moment at the whim of the settlor.  Since a revocable trust can be amended or cancelled, a settlor of a revocable trust may amend the beneficiaries named therein or may cancel the trust altogether, which would result in the trust property being transferred back to the settlor.

Importantly, a revocable trust cannot be used to shield the settlor’s property from his/her creditors.  In many jurisdictions, the law does not distinguish between property held in a revocable trust and property owned by the settlor of such a revocable trust.  The settlor of a revocable trust with the power to revoke effectively retains full ownership and control over any property transferred to that trust.  Thus, creation of a revocable trust does not prevent creditors of the settlors – who are often also the trustees and the sole beneficiaries during their lifetimes – from reaching the trust property.

Related entries