Michigan Revocable Living Trust: How to Set One Up

A revocable living trust is one of several ways Michigan residents hold and pass on property, alongside the wills and probate-avoidance deeds covered in estate planning in Michigan. What follows covers who can create a trust, the elements that make it valid, the steps to sign and fund it, and how to amend or revoke it later.

What a revocable living trust does in Michigan

A revocable living trust (also called an inter vivos trust) is a written arrangement created during the settlor’s lifetime. In most plans the settlor is also the initial trustee, which keeps full control of the assets, and names a successor trustee to take over at death or incapacity. Because the trust, not the individual, holds legal title to the assets, property titled in the trust passes to the beneficiaries without probate. The State Bar of Michigan notes that assets held in a trust will likely avoid probate court involvement.

The “revocable” label matters. Under MCL 700.7602, unless the terms of a trust expressly state that it is irrevocable, the settlor may revoke or amend it. Trusts created on or after April 1, 2010, when the Michigan Trust Code took effect, are presumed revocable unless the document says otherwise. That default is the reverse of the rule that applied to some trusts created before that date.

A revocable trust controls only the property actually transferred into it. It does not shield assets from creditors during the settlor’s life, and it does not lower income or estate taxes while the settlor is living, because the law still treats the assets as the settlor’s own.

Who can create a trust and what makes it valid

Michigan sets out the elements of a valid trust in MCL 700.7402. A trust is created only if all of the following are true: the settlor has capacity to create a trust; the settlor indicates an intention to create it; the trust has a definite beneficiary (or is a charitable, animal-care, or other permitted noncharitable-purpose trust); the trustee has duties to perform; and the same person is not the sole trustee and the sole beneficiary.

The sole-trustee-sole-beneficiary rule rarely causes problems for a typical living trust, because a settlor who serves as sole trustee also names other beneficiaries who take after death. Capacity to create a revocable trust is measured by the same standard as the capacity to make a will.

MCL 700.7401 lists the methods of creating a trust. The common one for estate planning is a transfer of property to a trustee during the settlor’s lifetime, made in a signed writing.

Steps to set up the trust

Creating the trust is a document-and-titling process, not a court filing. A revocable living trust is not registered with any Michigan court and is not recorded in public records.

1. Draft the trust document

   The trust instrument names the settlor, the initial trustee, the successor trustee, and the beneficiaries, and states how assets are managed and distributed. To be valid, the document must reflect the elements in MCL 700.7402, including a clear intent to create a trust and at least one definite beneficiary.

2. Name a trustee and successor trustee

   Most settlors serve as their own trustee while alive and competent. Naming a successor trustee, whether an individual or a bank or trust company, provides for management if the settlor dies or becomes incapacitated.

3. Sign the document

   The settlor signs to establish the trust. A revocable trust does not require witnesses or a notary to be valid, though signing before a notary is common practice and helps prove authenticity later.

4. Prepare a certificate of trust

   Rather than hand the full trust to every bank or title company, the trustee can use a certificate of trust under MCL 700.7913, which confirms the trust’s existence and the trustee’s authority while keeping the terms private.

Funding the trust

Funding means transferring ownership of assets into the trust. An unfunded trust (a signed document with nothing titled in it) does not avoid probate, because probate depends on how assets are titled at death, not on whether a trust document exists.

• Real estate is transferred by recording a new deed that names the trustee as owner.
• Bank and brokerage accounts are retitled into the name of the trust.
• Personal property can be moved into the trust by a written assignment.

Some assets usually stay outside the trust. Retirement accounts such as IRAs and 401(k) plans pass by beneficiary designation, and naming a trust as the beneficiary of a retirement account carries its own tax consequences. Life insurance and payable-on-death accounts also pass by designation.

For anything not transferred during life, a “pour-over” will directs that property into the trust at death. MCL 700.2511 allows a will to devise property to the trustee of a trust the settlor established. Property that passes through a pour-over will still goes through probate before reaching the trust, so lifetime funding is what actually avoids probate. Two Michigan probate-avoidance options for property left outside a trust are a Michigan small estate affidavit for smaller estates and a Lady Bird deed for real estate. ## Taxes and what a revocable trust does not do During the settlor’s life, the IRS treats a revocable living trust as a grantor trust. Trust income is reported on the settlor’s personal return using the settlor’s Social Security number, and the trust does not file a separate income tax return or need its own employer identification number while the settlor is alive and serving as trustee. A revocable trust that becomes irrevocable, generally at the settlor’s death, needs a new EIN and files its own returns from that point. A revocable trust does not reduce estate or inheritance tax. Michigan does not levy its own estate or inheritance tax, a point covered in whether Michigan has an estate or inheritance tax; the federal estate tax applies only to estates above the federal exemption, whether or not the assets sit in a revocable trust. ## Amending or revoking the trust Because a Michigan revocable trust stays under the settlor’s control, the settlor can change beneficiaries, replace trustees, add or remove property, or cancel the trust entirely at any time while competent. MCL 700.7602 governs how this is done: the settlor may revoke or amend a revocable trust by substantially complying with a method stated in the trust’s own terms, or, if the terms state no method, by a later will or codicil that refers to the trust or by any other writing that shows the settlor’s intent by clear and convincing evidence. A minor change is often a single signed amendment page added to the trust. A larger set of changes is usually handled through a full “restatement,” which replaces the trust’s terms while keeping the original trust in place, so assets already titled in it do not have to be transferred again.