Revocable Living Trusts: Pros and Cons of Living Trusts
Reasons to Choose a Living Trust
Here are some of the top reasons people choose to use a living trust in their estate plans.
- Security. A living trust provides uninterrupted management of your assets if you become ill or incapacitated and have named a successor (back-up) trustee—eliminating the need for the courts to appoint a conservator or guardian.
- Privacy. A living trust avoids the costs and delays of probate—the state-sanctioned system that oversees the administration of your will. Avoiding probate means your heirs receive your estate faster. Plus, a living trust is not subject to public scrutiny, so your beneficiaries and the amounts they receive remain confidential.
- Flexibility. You have the freedom to amend, add to, or even completely revoke the trust agreement as you wish.
- Professional management. You may choose to appoint a professional trustee such as a bank trust department or trust institution. This frees you from the worries of the day-to-day management of assets. Yet, if you choose to remain as co-trustee, you still may direct investment goals, including instructing your trustee to change investment strategies.
- Control. Living trusts allow you to control who will be the trust’s beneficiaries and the trustee. Most likely you will name yourself as the trustee during your lifetime and maintain the right to appoint and select successor trustees and beneficiaries. You also control the income and principal and how much of it you wish to use during your lifetime.
- Tax savings. Although the assets in your living trust are subject to estate taxes, the trust may be drafted—just as a will can be—to make the most of federal estate tax exemptions. Plus, after your lifetime, the value of any assets distributed immediately to PETA completely eliminates federal estate tax.
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The Downside of Living Trusts
- Initial expense. Legal fees for drafting a revocable living trust can be higher than those required to draft a will.
- Administrative tasks. There are administrative tasks associated with a revocable living trust (such as accountings, reports and distributing income).
- Tax considerations. Although assets inside a revocable living trust do avoid probate, they are still subject to estate taxes.
- Asset management. Trust language only protects assets held by the trust. Some assets cannot be transferred into a revocable living trust, such as IRAs, retirement plans and jointly owned assets. In addition, trust creators too often fail to transfer their eligible assets into the trust. For any assets that were inadvertently not transferred, a “pourover” will is necessary.
- Eliminating creditors. Creditors may not be eliminated as quickly with a trust. Probate is not always a process that should be avoided; in some states the process isn’t expensive or time-consuming, and the typical six- to 12-month claims period shuts off estate creditors, thereby protecting your assets after the claims period.
- Adequate oversight. Without court supervision, there is little oversight, and trustees can fall guilty of fiduciary lapses.
If you’d like to include PETA in your living trust or other estate plans, please contact Tim Enstice at 757-962-8213 or firstname.lastname@example.org.