Revocable trust – What is it, definition and concept

The revocable trust is a contract by which an estate is transferred between two parties and that can be modified. In Spain, the trust is a testamentary disposition by which the trustor establishes an order to inherit (all or part of the inheritance) and that can change at any time before his death.

In this article, we will focus particularly on the trust as hereditary substitution, when it is a successive and chronological disposition that is established by the testator in his will. Thus, the order in which an inheritance will be transferred from one beneficiary to another is specified. If that provision can change, the trust is revocable.

To explain it in simple terms, A (trustor) institutes B (trustee) as heir and provides that on B’s death, C (trustee) replaces him. That is a trust. What would make it revocable is the possibility that as long as A (the settlor) lives, he can modify said provision.

Irrevocable trusts, unlike revocable trusts, cannot be modified once the testamentary disposition has been registered or the contract has been perfected.

The revocable trust has a certain advantage for the settlor, and that is that, in life, depending on the circumstances, you can plan the delivery of your estate by canceling and modifying as many times as you want and as you consider. For this reason, this trust is also known as a living trust.

What is needed for a revocable trust?

For a revocable trust to exist, the following is required:

  1. An estate is needed for it to be an inter vivos contract. In order for the agreement to be valid at the death of the trustor, an inheritance is necessary and that in the will several people are called to inherit.
  2. The settlor must be alive for the trust to be modified or cancelled. Upon the death of the settlor, the contract becomes irrevocable.
  3. There must be three parties involved in this trust: the settlor, who conveys the estate; the fiduciary, who receives it to save or manage; and the trustee, the heir if it is a testamentary trust or, otherwise, will be the beneficiary of the contract.
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How is this type of trust made?

Let’s see the steps to create this type of trust:

  • 1. The settlor must make an inventory of the assets left in trust, it can be all or just a part of it.
  • 2. You must indicate the person you leave as trustee and trustee. And having drawn up this legal contract in life, he can cancel or modify it in the terms he wants. You can change the trustee or trustee or the part of the estate you want to put in trust.
  • 3. This contract must be signed by the grantor and by the trustee. It will have to be publicly deeded, that is, signed by a notary.

All revocable trusts will become irrevocable upon the death of the settlor or his or her declaration of judicial incapacity.

Example

To understand it better, let’s see an example:

A, the grantor, has an estate consisting of three bank accounts. He decides to make a trust on one of those bank accounts to benefit C.

The grantor may revoke the trust for any reason he wants, for example, because C has not married, or because he has had a child, etc.

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