Revocable Trusts

A revocable trust, sometimes called living or intervivos trust, is an agreement made by the trustor, also called the grantor, and the trustee. The trustor gives the trustor's property to the trustee. The trustee manages the property in accordance with the instructions of the trustor as they appear in the trust agreement. The revocable trust may be amended or revoked at any time during the trustor’s lifetime so long as the truster is competent, or by the trustor’s will if the trust instrument authorizes revocation in that manner. Under Iowa law, a trust created during the grantor’s lifetime is revocable unless the trust instrument expressly states that it is irrevocable. If the trust is not revoked, it becomes irrevocable at the trustor’s death.

Trustees

You can be the trustee of your own trust. If you are the trustee of your trust, you continue to manage your own financial affairs. The only difference is that from a legal standpoint the assets are owned by your trust. If you are not the trustee, you may choose to name as trustee an individual with investment expertise, or a bank. Following the instructions in the trust agreement, the trustee will manage your property, handle the collection of income from the assets, and pay expenses from the trust. In addition, if instructed, the trustee will also make investment decisions. If you name a professional trustee, you should inquire about the fee for administering the trust.

There are several reasons people choose to set up revocable trusts. One reason people consider a revocable trust is to obtain privacy in their financial affairs. A living trust is a private arrangement between the trustor, the trustee and the beneficiaries. Upon your death, unlike your will, a living trust agreement is not usually filed with the court, and does not become a part of the public record.

Incapacity

Another reason people establish a revocable trust is to provide for continued management of their assets upon incapacity. If you have established a trust and transferred your assets into the trust, the trustee (or a successor trustee, if you were the original trustee) can continue to manage your financial affairs should you become incapacitated. This eliminates the need for a court to appoint a conservator to handle your finances.

Probate

Many people are interested in establishing a revocable trust because it will allow their estate to avoid probate. If you have transferred all your assets to a living trust, there will be no need to probate your estate at your death. But, if you have not transferred all your property into the trust or you have acquired additional property that was not transferred into the trust, probate proceedings will probably be necessary. If there is a probate of your estate, an inventory of your assets must be filed with the court, and the value of your trust would be included.

For persons with real property (including condominiums) in two or more states, it is often advisable to transfer title to the real property in the state that is not the state of your permanent residence into a revocable trust in order to avoid ancillary probate proceedings in that state.

While establishing a living trust may avoid the need for the probate of your estate, it does not eliminate all costs associated with probate. You may still need to have someone prepare tax returns. Having a revocable trust does NOT eliminate the necessity to file an Iowa Inheritance Tax Return or a Federal Estate Tax Return if required, or to pay the tax. There may also be costs associated with transferring property to the trust beneficiaries.  In the event that an estate is opened, probate fees, including executor and legal fees are based on the value of the gross estate.  The gross estate includes the value of your probate assets and may also include the value of the assets in a revocable trust.

Wills

Even with a revocable trust, it is still necessary to have a will. If you do not transfer all your assets into the trust, you should have a will that would “pour over” (transfer) any assets of your estate to the trust.

A revocable trust can be an integral part of your estate plan. You should contact an attorney experienced in estate planning to see if a revocable trust is right for you.