Revocable Trust Definition

A revocable trust is an agreement between a grantor and trustee where it transfers profit generating assets to the trustee. However, the grantor is still able to generate income from the assets. The grantor is also able to change the terms of the agreement at any point during his/her lifetime. This last point is the difference between a revocable trust and an irrevocable trust.

Revocable Trust Meaning

Many use revocable trust estate planning to pass on a family company or perhaps some other part of the grantor’s estate to a revocable trust beneficiary. Beneficiaries are usually the grantor’s immediate family, but it can be anyone established within the contract. The main benefit is that the assets will be transferred to who the grantor desires. The grantor can still generate cash flow from the assets as well. Another primary benefit is that the grantor can change the terms at anytime to accommodate the grantor’s changing needs.

Revocable Trust Example

For example, Bob owns a bicycle shop chain named Pedal Bikes Co., which is a Sole Proprietorship. He has two sons and would like them to take over the company whenever he has passed away. Bob talked to his lawyer. The lawyer advised Bob that he should start up a revocable trust. The assets are then transferred to the newly formed Pedal Bikes Partnership under the revocable trust agreement. The two sons start running the chain while Bob comes into help them every now and then and provide oversight. Bob also receives payments from the company under the trust agreement.
When Bob passes away, the assets are then considered permanently transferred and are completely absorbed into the newly formed partnership. However, if one of Bob’s sons or both of them do not want to run the chain then Bob has the ability to change the terms of the contract to one of the sons or another party. This also insures that Bob receive payments in his later years and that his legacy lives on through his bike store chain.

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