Basic estate planning can help your loved ones avoid financial tragedy if something happens to you, and a revocable trust can be one of the best ways to establish an estate plan for you and your family. Also known as a living trust, revocable trusts are flexible legal documents that can change and adapt during your lifetime. Then, they typically become irrevocable, protecting your assets for the benefit of your family. Below, you'll learn more about how a revocable trust works and how you can use them for your estate planning.

What's a revocable trust, and how does it work?

A revocable trust is a trust that you create to hold whatever property you want to be subject to its provisions. The key aspect of what makes a trust revocable is that even after you create the trust, you can still make changes to the legal document that defines its terms, or you can get rid of the trust entirely and distribute its assets back to yourself. Typically, if you create a revocable trust, you'll also act as its trustee during your lifetime. Therefore, the way you'll manage your finances and other affairs doesn't change much from a practical standpoint from how you would without the trust.

Where revocable trusts really show their worth is when one of two situations comes up. If you become ill or an injury incapacitates you to such an extent that you can no longer handle your financial matters, then the successor trustee provisions of your revocable trust will allow the person you name to take care of those matters for you. The successor trustee takes control of the trust, overseeing its operation and becoming responsible for things like paying your regular bills, ensuring that any doctors' bills or other medical costs are taken care of, and handling ordinary financial needs that will come up. Then, once you're able to manage your own affairs again, you can take back over the trustee role.

Worksheet for estate planning.

Image source: Getty Images.

In addition, the revocable trust will include your wishes for what should happen to trust assets after your death. You can arrange to make outright gifts and terminate the trust shortly after your death, but you can also set things up so that the trust continues long after your death. In particular, the revocable trust can be useful for those with children who aren't yet adults, because you can provide for the trust to continue and for trust distributions for the benefit of those children to be made by the successor trustee until the children are old enough to handle their own financial affairs.

Why are revocable trusts good to use?

The flexibility that revocable trusts offer can be quite valuable, especially if you envision the possibility of needing to change your mind about your future financial plans. Another big benefit of using revocable trusts is your family can generally avoid a long, prolonged process called probate. Those who use wills instead of revocable trusts have to go to court and have the will established as the controlling legal document for handling your assets. The court proceeding is public, and your will and other documents are also available for the public to look at.

By contrast, revocable trusts are private documents that typically aren't subject to probate proceedings. Therefore, a successor trustee can manage your affairs without court intervention and without public scrutiny.

Are there any downsides to using a revocable trust?

The benefits of revocable trusts come at a cost, however. Most attorneys and other estate planning professionals have higher fees to prepare revocable trusts than they do for other planning documents such as wills.

Also, in order to implement the revocable trust, you'll have to formally transfer your property from your individual name into the name of the trust. That can necessitate the preparation of real estate deeds and other transfer documents, and fees might apply in some instances to make those transfers. Moreover, if you forget to transfer property into the trust, then its provisions won't apply, and your heirs might have to go to court after your death to take care of those outside assets.

That said, there are some ways to make these issues less onerous. For one thing, the savings from avoiding probate after your death will often make up for the extra amount you pay up front for trust preparation. Most attorneys also prepare simple wills in conjunction with revocable trusts, with the sole will provision being to put any remaining property into the revocable trust. These pour-over wills make sure that even if you miss something in the preparation process, the trust will still control all your assets.

Preparing a revocable trust can be the best way to handle your estate planning needs. With a combination of flexibility and strength, revocable trusts can protect your family finances for generations.

The Motley Fool has a disclosure policy.