A revocable trust is a legal vehicle for owning property. A client can create one and serve as the trustee, who manages the trust assets. Revocable trusts, called “living trusts,” are immensely popular. You can set up the trust so that, at your death, the assets transfer to your intended beneficiaries, so it is a substitute for a will for many people.
However, our clients should think carefully about whether they want to create a revocable living trust or a different legal vehicle. Below, our estate planning attorney considers key advantages and disadvantages.
Advantage: You Remain In Control Of Your Assets
A trust requires at least three parties:
- Grantor or settlor: this person sets up the trust and deposits assets into it
- Beneficiary: this person gains the benefit of the trust
- Trustee: this person manages the trust assets for the benefit of the beneficiary
With a revocable living trust, our client can serve as all three. This means they can move assets in and out of the trust at will. With an irrevocable trust, by contrast, it is very difficult to remove assets once they have been placed in the trust.
Disadvantage: You Gain No Tax Advantage
One reason people create trusts is that they seek a tax advantage. Unfortunately, there aren’t any with a living trust since the assets are still considered yours because you retain full control over them. To remove assets from your taxable estate, you should create an irrevocable trust.
Disadvantage: You Must Retitle Assets
The trust becomes the owner of any asset that you place in it. This means that assets typically need to be retitled. For example, if you want a trust to own your home, you’ll need to draft a new deed with the trust as owner. The same is true if you want the trust to own your car or boat.
Some assets do not have a title. Still, you should draft a legal document identifying them and stating that they are now held in trust. This is time-consuming and costly. By contrast, if all you want to do is leave assets to people, you can use a simple will and can avoid retitling anything.
Advantage: You Can Plan For Incapacity
Generally, many people create a financial power of attorney for the event of becoming incapacitated. But using a revocable living trust is another option. You can name a successor trustee to take over in the event you are incapacitated, and this trustee will manage the trust assets according to your wishes set out in the trust document.
Disadvantage: You Need To Pay To Create One
There are online “fill in the blank” trust documents, but they are less than ideal. Instead, you should meet with an attorney to draft your trust, which unfortunately does cost some money
You will also need to fund your trust with assets, and many people do not have anything to use. If costs are a concern, you might want to delay the creation of your revocable living trust, or you could create one with the rest of your estate plan, which can make it affordable.
Advantage: Your Trust Avoids Probate
Probate is a lengthy process, and your surviving family members might need to wait quite a bit before they can access cash and other assets. With a revocable living trust, you can ensure that they begin receiving income promptly, which can prove vital. Realize that your estate will not avoid probate altogether unless the trust contains all of your estate’s assets. Still, it can help create an income stream for loved ones.
Of course, the fact that a trust avoids probate does not mean that people cannot challenge it. But the process could be lengthy, and many people use trusts to ward off a challenge.
Advantage: You Can Maintain Privacy
Because a trust does not go through probate, the contents are not disclosed. This can be a big benefit for people who value their privacy.
You can also gain privacy while living. Because the trust is the title owner of the property, you can shield the asset from prying eyes. Of course, using a limited liability company (LLC) is another option for hiding ownership of assets that might make more sense, depending on the circumstances.
Interested In Creating A Revocable Living Trust? Contact Us Today
The high asset divorce attorneys at Lawrence Law Office have created many trusts for our clients, and we can talk in more detail about the advantages and disadvantages of each. A revocable living trust is only one option. For help, contact us today to schedule a confidential consultation.