Who owns the property in a revocable trust? 

Revocable trusts can go by other names like living trusts, inter vivos trusts or even “loving” trusts, but their purpose is the same: to address the problems that traditional last wills and testaments cannot solve.  

Under a revocable trust, the grantor’s assets go into the trust and are no longer in the grantor’s possession. But sometimes, estate planning can be confusing.  

If assets are not in the ownership of the grantor, who owns the property in a revocable trust? What becomes of the property in trust after the death of the grantor? InvestmentNews provides insight into these and other questions about property ownership in a revocable trust, so let’s begin. 

Which assets go into a revocable trust? 

A revocable trust is a legal entity created to hold assets for the benefit of another person or persons. Anyone who creates a trust can place any sort of asset into the trust, such as:  

• cash 
• stocks and bonds 
• insurance policies 
• real estate 
• jewelry 
• expensive art 

The assets placed in the trust agreement depend largely on the grantor (the creator of the trust), their financial goals, and their wishes for their beneficiaries. There are two main reasons for setting up a revocable trust:  

• to avoid probate court 

• to distribute assets to beneficiaries according to the grantor’s wishes

Terms to remember 

If revocable trusts tell a story about safeguarding wealth, here are the characters that are part of that story:   

Parties 

Trusts are typically defined in terms of the parties involved, namely the grantor, trustee and beneficiary or beneficiaries, and their relationship with the properties held in the trust. 

Grantor 

A grantor is the person who: 

• creates the revocable trust 
• sets out the terms of the trust 
• places assets in the trust 

There can be more than one grantor in a trust. Also, the grantor becomes the decedent of the trust after they pass away. Other names a grantor can be called are:  

• creator 
• founder 
• donor 

• settlor 
• trustor 

Trustee 

Trustees can be any individual or legal entity assigned by the grantor to oversee the assets and manage the trust. The trustee holds title to the property in the trust on behalf of the beneficiaries.  

It is the trustee’s duty to manage the property according to the rules outlined in the trust document. They must do so in the best interests of the beneficiaries.  

Trustees may be one of the following:  

• a trusted friend or relative of the grantor 
• a bank 
• an entrusted person like an accountant or lawyer 
• a trust company 

Some of a trustee’s duties include: 

• keeping records of any transactions involving trust assets 
• filing income taxes of the trust assets 
• recording expenses and income while managing the trust 

• distributing funds to beneficiaries in keeping with the trust terms 

Beneficiary 

The beneficiary or beneficiaries are the people benefiting from the trust. Multiple trust beneficiaries often do not share the same interests in the trust assets.  

Trust beneficiaries do not have to exist when the trust is being drafted. In most cases, grantors can make almost any person or legal entity designated beneficiaries of a trust, will, or life insurance policy. Grantors can state that the beneficiaries only receive the funds in the trust if they meet certain conditions like getting into college or getting married.  

Who owns the assets in a revocable trust?  

To know exactly which person or legal entity owns the trust, concerned parties should look at the provisions of the trust. There may be cases where the grantor, trustee, and beneficiary are the same person. In other cases, it’s possible for the grantor to name a trustee to manage the assets without having beneficiaries yet.  

Here are important takeaways regarding ownership of trust assets:  

1. It’s legal for a grantor to also be the trustee and initial beneficiary of a revocable trust. This setup is designed for the grantor to retain full control of the trust and the assets within it. This does not mean that the grantor owns the assets – it’s the revocable trust that holds title to the assets.  

2. A grantor who is also the trustee and beneficiary of a revocable trust retains control of their assets until they die or are incapacitated. It is the grantor who still owns controls the assets in the trust. In this case, the grantor must also name a successor trustee who becomes the new trustee in the event of the grantor’s death or incapacitation. 

3. Meanwhile, if a grantor assigns a trustee, then the trust holds ownership of the assets, with the trustee managing the assets. It’s the trustee who also works in the best interest of the beneficiaries. This can include duties like paying the appropriate taxes and ensuring that distributions are given in the amounts and times specified in the trust document.  

To find out who owns the assets in a revocable trust, look to whoever is the trustee. If the trustee is also the grantor, then the grantor still owns and controls the assets. If the grantor assigned another person or entity as the trustee, the trust owns the assets, which are managed by the trustee.   

This short video explains whether grantors should amend the trust if they buy additional assets and place them into the trust. Or in another instance, when the grantors decide to change the trustee or change the way assets are distributed to their beneficiaries. Guess which of these need trust amendments? Discover the answers in the video:  

Who pays taxes in a revocable trust? 

From the viewpoint of the IRS, the revocable trust has the simplest tax regimen. In a revocable trust, the grantor is responsible for paying any income generated by the trust. They must pay income tax on this during their lifetime. 

If a property is in a trust, can it be sold? 

Yes, but only if the trust is a revocable living trust where the grantor creates the trust for themselves. In this case, the grantor is also the beneficiary, so there are no legal hurdles, and they can sell the property. 

In cases where there are other beneficiaries with interests in the property, selling the property can get complicated. For example, if the grantor does not have their records in order, the trust document may be difficult to locate. To sell any property within the trust, there must be a duly appointed trustee to manage the property and any transactions involving them.  

The pros and cons of a revocable trust 

Having a revocable trust comes with its benefits and disadvantages. There are tax and privacy issues to consider, along with privacy and cost concerns. Investors should weigh the advantages against the drawbacks when deciding to set up a revocable trust. 

The pros of a revocable trust 

A revocable trust avoids probate 

The probate process can be long and costly; it could take months before the beneficiaries even see the assets they are due to inherit. Under a revocable trust, the assets do not go into probate and are distributed to beneficiaries as set forth in the trust.  

A revocable trust keeps the assets private 

If the assets are part of a last will and testament, they enter probate. Details about the assets become a matter of public record. Not so with a revocable trust – assets do not go into probate and are not recorded in a court nor revealed to the public.  

A revocable trust protects assets in case of the grantor’s incapacitation 

Aging and its accompanying health issues are a reality no one can reverse. Should the grantor suffer from an illness that leaves them disabled or chronically ill, a revocable living trust assigns a successor trustee to manage the assets. The trust also outlines how the assets will be distributed to beneficiaries. 

A revocable trust separates assets 

If the grantor has a sizable estate before they get married, they can place the assets in a trust. A revocable trust can keep an individual’s assets separate from conjugal assets, which may be subjected to divorce proceedings.  

The cons of a revocable trust 

Revocable trusts can be costly to set up 

While it’s possible to set up a revocable trust without a lawyer, there are other costs involved. Revocable trusts can be more expensive since they require re-titling assets with the trust as the owner of the assets. The only assets that do not require re-titling are insurance policies, annuities, and retirement plans.  

There are no direct tax benefits 

Since the grantor still has control over the trust assets, the income still passes through them, and they must pay income taxes on this income. This contrasts with irrevocable trusts which require the grantor to relinquish ownership of the assets.  

Revocable trusts offer little protection from creditors 

Unlike an irrevocable trust, a revocable trust hardly offers protection against creditors. This makes it riskier for financial advisers, real estate agents, doctors, or lawyers, whose profession is vulnerable to lawsuits. These professionals might want to consider asset protection trusts instead. 

What happens to the revocable trust after the grantor dies?  

Typically, the successor trustee steps in to fulfill their duties after the grantor dies. But before the assets in the trust are turned over to the beneficiaries, these are the trustee’s tasks:  

• notify the beneficiaries of the grantor’s death 
• take inventory of the property and assess their value 
• pay the expenses, debts, and taxes of the trust 
• distribute trust assets 

The revocable trust becomes an irrevocable trust once the grantor dies. The trustee can administer the trust terms on their own, but they are advised to hire an estate or trust attorney to assist them.  

Revocable trusts are a useful estate planning tool but are not for everyone. Investors should consider their financial goals, their estate, and their wishes for the beneficiaries before settling on a revocable trust. There’s also no rule that says they cannot place some assets in a revocable trust and others in an irrevocable one – if these align with the investor’s goals and wishes.  

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