What Is a Reversible Living Trust?

The reversible trust document, which is handled by a designated trustee, specifies how you want your assets and financial affairs handled during your lifetime and beyond. Once the trust document is done, you or the attorney can transfer your assets into the trust. For example, if you own a home or vehicle, the title gets transferred to the trustee. You can also transfer bank accounts, life insurance policies, family heirlooms, antiques, artwork and jewelry to a reversible trust.

Unlike wills, reversible trusts aren't subject to the probate process. That means your estate doesn't become a matter of public record, and your heirs get faster access to their inheritance. If you have a sizable estate, transferring assets to a reversible trust may help your spouse save money on estate taxes when you die. It also ensures your finances are managed according to your wishes should you become permanently incapacitated. Since the trust is reversible, you can at any time remove assets from the trust, change your beneficiaries, or change how the assets are distributed.

Whether or not you need a reversible trust depends on several factors. You may want one to create a tax shelter for your spouse if you're worried about getting hit with estate tax. If you have young children, you can also use a reversible trust to name someone to act as their legal guardian and financial conservator should both of you die before they reach adulthood. If you want to transfer assets that can't be changed, you may want to create an irrevocable trust instead.

Assets in a reversible trust are still subject to creditor claims as long as you live. If you owe outstanding debts, creditors can still attempt to pursue collection actions against assets in the trust since the transfer of property can be reversed. Creating a reversible trust does not negate the need for a last will and testament. You'll still need a will to specify the distribution of any assets or personal items not included in the trust.