The Pros and Cons of a Revocable Living Trust

A revocable living trust is a legal document that is used as a part of many estate planning strategies. The document is drafted and signed while you are living and funded by the assets you choose. These assets can include property, many financial accounts, and much more. When added to the revocable living trust, they are retitled in that trust’s name. Rather than you being the legal owner, they are owned by the trust. This may seem overly complicated at first, but there are many legal and financial benefits to taking this approach. Read through the pros and cons of using a revocable living trust to see if it is a good option for you.

Advantages of a Revocable Living Trust

The following are some of the key reasons why revocable living trusts are an important part of so many people’s overall estate plan:

  • Keeps Assets Out of Probate – Since the assets in a trust aren’t technically owned by you, they don’t need to go through probate after you pass away.
  • Privacy – Trusts are not a matter of public record so you can keep your assets private while living and have them inherited by a loved one without everyone being able to know about it.
  • Additional Control – You have more control over what happens to the assets when you die than you would with a traditional Will. This is especially true when creating charitable trusts and other types of trusts that are designed for specific purposes.
  • You Can Make Changes – When using an irrevocable trust you are very limited on what you can do to change the setup of the trust. With a revocable trust, however, you can always modify it, or even close it out entirely, throughout your life.

Disadvantages of a Revocable Living Trust

While it is clear that revocable living trusts are great for many things, there are also some potential downsides that need to be considered. These include:

  • Not for All Assets – Certain assets like IRAs, 401(k)’s, profit sharing accounts, and other things that have designated beneficiaries shouldn’t typically be placed in a revocable living trust. This is because it would create an immediate taxable income event when your heir takes possession.
  • Administrative Effort – All trusts, including revocable living trusts, need to be properly set up and maintained. While this will typically be done by an attorney, it is not something that can be ignored.
  • No Tax Avoidance – This is a common misconception about revocable living trusts. While estate planning, in general, can help to minimize your tax burden, this type of trust isn’t going to be used specifically for that goal.
  • Not Protected from Creditors – Revocable living trusts are not protected from creditors, so if you owe money to a company, the IRS, or another entity, this won’t shield you from collection efforts.

Schedule a Consultation Today

Each person’s situation is unique so while it is possible to look at the pros and cons of a revocable living trust or other estate planning tools, it isn’t quite so easy to determine if they are ideal for you. In order to do that, you’ll want to talk with an experienced attorney. You can contact Carroll Law Offices to schedule a consultation with an experienced estate planning attorney.