Revocable living trust: what it does and what it does not

Funding is the whole exercise

An unfunded trust does nothing. Assets must actually be retitled into the trust: deeds recorded for real property, accounts retitled at the bank and brokerage, business interests assigned in accordance with the operating agreement.

Anything left outside the trust still goes through probate, which is why the trust is paired with a pour-over will that sweeps stray assets into it — a safety net, not a substitute for funding.

Beneficiary-designated assets are different: retirement accounts and life insurance pass by designation, and naming the trust as beneficiary of a retirement account can have adverse tax consequences. Those designations should be reviewed with the trust, not folded into it by default.

1. 1.List assets and decide which belong in the trust.
2. 2.Name the successor trustee and the beneficiaries, with contingent beneficiaries.
3. 3.Sign the trust with the formalities your state requires, before a notary.
4. 4.Record new deeds for real property and retitle financial accounts.
5. 5.Sign a pour-over will and update powers of attorney and health directives.
6. 6.Review the funding annually and after every major purchase or sale.

What it does well

It avoids probate in every state where you hold trust assets, which matters most if you own property in more than one state — otherwise the estate faces ancillary probate in each.

It stays private, where a probated will becomes a public record. And it provides for incapacity: the successor trustee steps in without a court-appointed conservatorship.

What it does not do

It does not reduce income tax — trust income is reported on your own return — and it does not by itself reduce estate tax. It does not protect assets from creditors during your life, and it does not qualify you for Medicaid.

It also does not replace a will entirely: guardianship of minor children is appointed in a will, not in a trust.