living trusts

The Advantages and Disadvantages of Revocable Living Trusts

Estate planning is a complex process that requires weighing various options and how to accomplish your personal estate planning goals. One option many people consider is a revocable living trust. Trusts are separate entities in which creators are allowed to place assets while still maintaining control. While revocable trusts offer several benefits, they also have some downsides to consider.

What is a Revocable Living Trust?

A revocable living trust is a legal entity you create to hold assets and property during your lifetime. You name yourself as the trustee, maintaining full control over the assets in the trust. This is the key distinction from an irrevocable trust – with a revocable trust you retain flexibility to manage, access, dissolve, or amend the trust terms at any time.

You can place bank accounts, investments, real estate, and other assets into a revocable living trust. You continue using these assets as you normally would. As a trustee, you still file taxes on trust income and deductions on your personal tax return.  Your trust does not file a tax return.

Upon death or if you become incapacitated, the named successor trustee takes over management of the living trust. Because you already transferred assets into it, they pass outside of probate directly to beneficiaries according to the trust instructions.  Avoiding probate court is a major advantage of a trust versus a Last Will and Testament.

Advantages of Revocable Living Trusts

While no tool is right for everyone, revocable living trusts can offer advantages in certain situations. Some key benefits include:

  • Avoiding Probate – The primary benefit is avoiding assets having to go through probate after you pass away. Instead, the trustee distributes trust assets privately.
  • Maintaining Control – Unlike an irrevocable trust, you keep full control and access to the assets in a revocable trust. You can serve as your own trustee.
  • Privacy – Trusts are not part of the public record like a Last Will and Testament. You can distribute assets discreetly without the process becoming part of the probate court record.
  • Handling Incapacity – Your named trustee takes over managing trust assets if you become incapacitated.
  • No Guardianship – If assets are in a trust, you may avoid a court-ordered guardianship in case of incapacity.
  • Flexibility – You can change the trust terms or move assets in/out of the living trust at any time.  Your trust will also be valid if you move to another state.
  • Protection for Heirs – As talked about previously, assets transferred to beneficiaries avoid going through probate.
  • Potential Tax Savings – While no direct tax savings for you, heirs may pay lower estate taxes depending on the estate value.

These benefits make revocable living trusts an attractive option for many people as part of their estate plan. The privacy, control, and efficiency of avoiding probate are often primary incentives.

Disadvantages of Revocable Living Trusts

There are also some potential disadvantages to consider before establishing a revocable trust:

  • Upfront Cost – Legal fees to properly create a trust may be more than a Last Will and Testament.
  • Administrative Burden – Transferring assets into the trust is necessary to have these assets held in the trust.
  • Divorce Complications – Removing marital property from a revocable trust as the result of a divorce may be necessary.
  • No Tax Benefits During Life – Revocable trusts do not provide income tax savings for you personally while alive.

These potential disadvantages don’t apply in all cases but are factors to keep in mind when weighing options. As always, speak with an experienced estate planning attorney to determine which of the cons of a revocable trust may apply to your situation.

When Might a Revocable Living Trust Be Useful?

Given the mix of pros and cons, in what situations might a revocable trust be beneficial? Here are some examples where the benefits often outweigh the disadvantages:

  • You own assets – Avoiding probate may provide significant time and cost savings, no matter the size of your estate.
  • You own real estate in multiple states – Probate must occur in every state where you hold property, so a trust can avoid multiple court processes.
  • You highly value privacy – Those wanting to avoid public disclosure of assets and distribution opt for a trust.
  • You have concerns over incapacity – A trustee can take over the management of assets if you’re unable to do so.
  • You anticipate estate disputes – Trust settlement outside of court may lessen the potential for heirs to contest a will.

What to Consider Before Creating a Revocable Living Trust

Revocable trusts can accomplish goals like avoiding probate and ensuring continued asset management if you become incapacitated. Before taking steps to create a revocable living trust, be sure to:

  • Consult with experienced estate planning attorneys – Attorneys who specialize in this area of the law can provide sound legal advice regarding whether a trust appropriately fits your financial and estate goals.
  • Review all options thoroughly – Look at trusts alongside other estate planning tools such as beneficiary designations, joint ownership, gifting, and powers of attorney. Seek a holistic strategy.
  • Ask questions and understand implications – Creating a trust has long-term consequences. Ensure you are fully informed of the implications for your heirs and estate.

With something as important as estate planning, pursuing a balanced viewpoint across lawyers, financial advisors, and tax professionals helps avoid overlooking critical factors. Careful and knowledgeable deliberation leads to the most favorable solutions for you and your family.

Contact Our Established Southern Alabama Estate Planning Firm

Revocable living trusts offer many advantages like avoiding the probate process and preserving privacy. Many people choose a revocable living trust after considering all of their estate planning goals.

At Stone Crosby, our estate planning attorneys have extensive experience establishing and administering trusts. We understand the intricate details of successfully structuring and managing trusts to achieve your financial goals both now and in the future. To explore whether a revocable living trust is appropriate for your unique needs and situation, contact our office for a consultation today.