In general, a Revocable Living Trust is simply a trust created during lifetime and over which the creator (or grantor) retains the right to the trust income, to amend its terms, and to revoke the trust in its entirety. The signing of a legal document known as a trust agreement formally creates the Revocable Living Trust. As with any trust arrangement, property is then transferred to the trust, and the trust agreement provides how the trustee will distribute the trust income and ultimately the property itself.Assets transferred to a Revocable Living Trust during lifetime and held in the trust at the grantor's death are distributed or held in a continuing trust by the trustee as directed in the trust agreement. Therefore, these trusts can be thought of in part as a Will substitute and, as a result, the assets held in the trust at the grantor's death will avoid the state's probate process -- one of the reasons these trusts are established. A Revocable Living Trust is often coupled with a very simple Will, known as a "pour-over" Will, which distributes or "pours" the decedent's assets at death (not previously transferred to the trust) in accordance with the distribution terms of the trust.
The probate process is an administrative process in which the county government oversees the distribution of assets owned directly by the decedent at time of death. This process requires the filing of the decedent's Will with the county, as well as a filing of an inventory of assets and certain periodic accountings. These filings are included in a county probate file that is open for view by the general public. Assets held in a trust at the decedent's death are not subject to the probate process. Hence, confidentiality is a benefit of the use of this trust. In addition, since assets do not pass through probate, trust assets will avoid any delay in distribution caused by probate (at least six months) and avoid the probate fee -- the fee charged by the county to oversee the probate process. For a Maryland estate of just under $1,000,000, this fee would be $1,000; for a Maryland estate of approximately $5,000,000, this fee would be about $2,500.
Probably the most important advantage of a Revocable Living Trust is the protection it can afford the grantor and his or her family. The trust can provide for the grantor's affairs to be managed more easily, either immediately or upon the grantor's disability or incapacity, by having someone else named as the initial or future trustee to manage the trust assets. The terms of the trust agreement are written to specify when and under what measured circumstances a change of trustee is to occur (for example, at disability).
The use of a Revocable Living Trust does not limit the grantor's ability to carry out his day-to-day financial affairs, or interfere with any continued control of the trust property. In addition, the same estate tax planning that can be accomplished with a Will can be accomplished using a Revocable Living Trust (see the article beginning on page 1). There is, however, no income or estate tax savings with the use of this trust. During the grantor's lifetime, the income from the trust assets is taxed at the grantor's income tax rates (as if the trust did not exist), and at death, the full value of the trust property is included in the grantor's taxable estate.