Revocable Living Trusts can be a great way to protect family assets, plan for the future, and reduce estate taxes. However, there are some potential disadvantages of a revocable living trust that you should consider before deciding if it is the right choice for you. Here are some of the most common drawbacks of a Revocable Living Trust.
Costs Associated with Setting Up a Trust.
One of the biggest disadvantages of having a Revocable Living Trust is that it can be costly to set up and manage. (Or at least it costs more up front. However, it saves your family money in the long run.) The cost of creating a trust document, along with hiring an attorney for legal advice, are often needed to structure an effective trust.
It Takes Time to Fund the Trust.
One of the disadvantages of a revocable living trust is that you need to transfer assets to it. Otherwise, if you die your loved ones could have to do both a probate (to transfer your house and other assets to the trust) and then a trust administration.
Funding the trust means recording a deed to your house transferring it from your personal name to you as trustee of your trust. You have to change your bank account from being in your personal name to being owned by you as trustee. You may need to change the beneficiary of your life insurance to be your trust.
It May Make You Look “Rich.”
Some people may assume that since you have a living trust, you must have some savings and other assets. If you get in a car accident and cause an injury, the injured party’s lawyer could research the public records to see that your house is in a trust. This may make the lawyer more willing to take a case against you on a contingent fee basis.
Inconvenience When Making Changes to the Trust Document and Assets.
Another of the disadvantages of having a revocable living trust is that making changes probably requires seeing your estate planning attorney again. Any changes you wish to make to the trust document require your consent, and must be done through the use of a supplemental document or an amended trust. Making amendments can also become costly, as it typically entails the services of an attorney.
Complex Documentation Is One Of The Disadvantages of Revocable Living Trust
The process of setting up a revocable living trust is usually quite involved and often requires being handled by an attorney. This makes it more expensive than other types of trusts. Additionally, mistakes during the process could make the whole trust document void and have to be redone completely. For these reasons, it’s important to ensure that everything is properly documented when creating a Revocable Living Trust.
Just Because You Have a Trust Does Not Necessarily Prevent Probate.
Even if you have a revocable living trust, your estate may still have to go through probate. This is because not all assets are necessarily transferred over or addressed in the trust document. Common examples include life insurance policies and jointly owned real estate. You should take care of these and other housekeeping responsibilities in order to avoid having your assets subject to probate court jurisdiction after you pass away. Therefore, it’s important to make sure that all assets are properly addressed in the revocable living trust documentation.
There are other reasons that your estate or trust may still end up in probate. You may have a disgruntled heir. Your documents might get lost. There could be a dispute about division of your property after you’re gone. These are just some examples.
Despite the Disadvantages of Revocable Living Trust, Having One May Still Make Sense For You.
We get it. Having a living trust may or may not make sense for you. (We just listed a handful of disadvantages of revocable living trust.) But there are definitely some advantages to having a living trust. (Otherwise, they wouldn’t be so popular.) What if the advantages outweigh the disadvantages of a revocable living trust? Here is a short list of advantages of having a revocable living trust.
- The cost of a probate could be much higher than the cost of setting up a trust.
- The time it takes to fund the trust is a lot less than the time involved in a probate after you die.
- These days, most people don’t assume you’re “rich” just because you have a trust. In fact, in retirement areas like Sun City, Arizona, having a trust is just part of being accepted into the dating scene. (Yes, that’s funny but true.)
- Amending your trust is usually fairly simple. It may cost a little money. But it’s usually not that bad.
- Reputable estate planning attorneys belong to associations that provide legal document programs. For example, we belong to Wealth Counsel. This helps ensure that the documents are mistake-free. Plus, as part of the package, you receive a trust summary that is easier to read and understand.
- Your house, accounts and other property are a lot less likely to have to go through probate if you have a trust.
Despite the disadvantages of a revocable living trust, it still might be a good idea for you and your family. If you want to find out for sure, give us a call at 602-443-4888. We will give you an honest legal opinion with no sales pressure.