Revocable Living Trust

You sign a trust document, usually naming yourself as trustee and beneficiary, so day to day nothing changes: you buy, sell and spend as before. The document also names a successor trustee, often a spouse, an adult child or a trust company, who acts only when you can’t. It is a Trust in the full legal sense, just one you keep complete control over.

If you become incapacitated, the successor trustee takes over the trust’s assets under the terms you wrote, without asking a court to appoint a guardian or conservator. That authority covers only property in the trust, so you still need a durable power of attorney for everything else, such as retirement accounts and tax filings.

At your death the trust becomes irrevocable. The successor trustee collects the assets, pays final bills and taxes, and then distributes what remains or keeps it in continuing trusts, for example until children reach set ages. Because the trustee already holds title, none of this requires Probate. A short pour-over Will sends anything you forgot to retitle into the trust, but those assets may still go through probate first.

A living trust controls only what you transfer to it. The Consumer Financial Protection Bureau puts it bluntly: the trust is ineffective unless you put money or property into it. Funding means changing the owner on each asset from your name to your name as trustee, and it is the step people most often leave unfinished. A practical approach is to list every account and property you own, then decide asset by asset whether it should be retitled or pass directly by a beneficiary designation that points to the trust or to people.

For income tax, a trust you can revoke is a grantor trust, so its income, gains and deductions go on your own return. The IRS says most people with a revocable living trust can report this way under their own taxpayer number, with no separate trust return while they are alive. Moving assets into it isn’t a taxable gift either, because you can take them back.

For estate tax, the tax code pulls any property you could revoke back into your gross estate, so the trust saves no estate tax. For 2026 the federal exemption is $15,000,000 per person, and a married couple can shelter $30,000,000 with portability, so most estates owe nothing anyway. Couples in states with their own estate tax may still build subtrusts into the document to plan around it.

Inclusion in the estate has an upside: assets in a revocable trust get a step-up in basis at death, just like assets owned outright. A home held in the trust also keeps your home sale exclusion, because IRS rules treat you as its owner. After your death the trust needs its own taxpayer number, and the trustee and executor can elect to treat it as part of the estate for income tax.

The main benefits are practical. Assets titled to the trust skip probate, which can be slow and whose files are usually public. The trust plans for incapacity in the same document that handles death. It can avoid a separate probate for real estate you own in another state, and it can hold an inheritance for young or vulnerable heirs long after you are gone.

The costs are also real. Drafting usually costs more than a simple will, and funding takes paperwork. You get no tax savings and no creditor protection, since you can take the assets back at any time. Medicaid rules count everything in a revocable trust as available to you, so it does nothing to shelter savings from long-term care costs; that takes an irrevocable trust set up well in advance. And a trust can’t name a guardian for minor children, so you still need a will.

Common mistakes that keep a living trust from doing its job: