For individuals who decide to include one in their plans, a revocable living trust is a strong estate planning instrument that can be advantageous.

The most notable benefit of this type of trust is that it allows you to make decisions about the distribution of your assets before you pass away—without going through probate court, which can be time-consuming and expensive.

However, trusts also come with certain drawbacks, such as tax implications and ongoing maintenance, that must be considered when deciding if this option is right for you.

In this blog post, we will explore the advantages and disadvantages of establishing a revocable living trust and some key factors readers should consider when deciding on an estate plan.

What Is a Revocable Living Trust?

A revocable living trust is a legal document that allows you to transfer assets, like property and investments, into a trust managed by a trustee during your lifetime. Upon your death, the trustee will manage and distribute those assets according to the instructions set out in the trust agreement.

Pros of a Revocable Living Trust

- Avoiding Probate: One of the main advantages of a living trust is that it allows you to avoid the expensive and lengthy probate process. Without a living trust, your estate will be subject to probate before any assets can be distributed to your beneficiaries.

However, with a revocable living trust, the trustee can distribute assets directly to the beneficiaries without going through the court-supervised probate process.

- Maintaining Privacy: A living trust also allows you to maintain privacy for your estate. Since trusts are not subject to public disclosure, they can help protect your assets from prying eyes and unwanted publicity.

- Flexibility: Another benefit of a revocable living trust is that you can alter or amend it anytime while still alive. This gives you greater flexibility to adjust the distribution of assets according to your changing needs and circumstances.

- Avoiding Conservatorship: Finally, a revocable living trust can help you avoid conservatorship if you become incapacitated. The trustee will take over the management of your assets and ensure they are used for your benefit.

- Controlling Your Assets: You can control your assets with a revocable living trust. The trustee is subject to the instructions in the trust agreement and must act by those instructions.

Cons of a Revocable Living Trust

- Costly Upfront Fees: One of the main disadvantages of a revocable living trust is that it can be costly to set up. You may need to hire an attorney to draft the legal documents, which could cost thousands of dollars.

- Difficult To Transfer Assets: Another downside is that transferring assets into a trust can be complicated and time-consuming. You may need to retitle property or investments for them to be properly transferred into the trust.

- Not For Everyone: A revocable living trust also may not be necessary for everyone. If you have a smaller estate with assets that can easily pass through probate, it may not make sense to invest in setting up a living trust.

- Loss of Control: Lastly, once assets are transferred into a trust, you no longer have direct control over them. The trustee will manage the assets according to the instructions in the trust agreement, and you may only be able to make changes with their consent.

Overall, a revocable living trust can be a useful estate planning tool for many people, but you must weigh its advantages and disadvantages carefully before determining if it's the right option for you.

Who Should Consider Creating a Revocable Living Trust?

A revocable living trust can provide several advantages for individuals looking to manage their estate planning efficiently and intentionally.

This type of trust allows you to make decisions about the distribution of your assets before you pass away without going through probate court.

Furthermore, it gives beneficiaries more control over how and when they receive assets, offers more privacy than a will, and can help to reduce estate taxes.

What to Consider Before Setting Up a Revocable Living Trust?

1. Tax Benefits

One of the major advantages of setting up a revocable living trust is that it provides tax benefits. With the trust, assets can be transferred to beneficiaries without having to go through probate court and face estate taxes or capital gains taxes.

The trust also allows you to avoid potential conflicts between heirs and creditors as your wishes distribute assets.

2. Control Over Assets

A revocable trust also gives you more control over your assets, as you can decide how the assets will be distributed upon death.

This allows you to plan and ensure your wishes are respected when it comes time to distribute those assets.

3. Flexibility

Another advantage of a revocable trust is that it allows you to make changes over time as your goals and plans shift.

This means that you can add or remove assets from the trust at any time and change the terms of the trust if necessary.

4. Ongoing Maintenance

While setting up a revocable living trust may seem attractive, some drawbacks exist. One of the biggest drawbacks is that ongoing maintenance is required for a trust, such as filing taxes and keeping track of assets.

This can be time-consuming and not worth the inconvenience or cost for some people.

5. Heir Conflicts

Another potential disadvantage of using a revocable living trust is that it can create conflicts among heirs if its stipulations need clarification.

This can be especially true if there is a disagreement about how assets should be distributed, leading to litigation that can further complicate matters.

Considering setting up a revocable living trust in your estate plan, it's important to weigh both the advantages and disadvantages before making a final decision.

Steps to Take to Create a Revocable Living Trust

1. Choose a Trustee

The first step in setting up a revocable living trust is to name a trustworthy individual or institution as the trustee. This individual or institution will manage the trust and ensure that assets are distributed according to your wishes.

2. Draft Legal Documents

Next, you'll need to draft the legal documents that will outline the terms of your trust. This includes naming beneficiaries, specifying how assets are to be distributed, and establishing a plan for ongoing maintenance of the trust.

3. Fund the Trust

Once you have drafted the legal documents, it's time to fund the trust. This involves transferring any assets you wish to include in the trust into the trustee's name.

It's important to ensure that all assets are properly recorded and accounted for to avoid potential conflicts.

4. Maintain Trust

Lastly, you must maintain trust continuously. This may include filing taxes, keeping track of assets, and monitoring the trust's investments.

FAQs

What are the 3 types of trust?

The three main types of trust are revocable, irrevocable, and testamentary. A revocable living trust is a type of trust that allows you to retain control over the assets placed in the trust during your lifetime.

Which type of trust is best?

The best type of trust for you depends on your individual needs and goals. Generally, revocable living trusts offer the greatest control and flexibility, as they allow you to make changes and manage the assets in the trust while you are still alive.

Which country is best for trust?

The best country for trust formation will depend on your individual needs. Generally, countries with strong asset protection and generous tax benefits are the most popular for establishing trust. Some of the most popular countries for trust formation include the United States, the United Kingdom, Switzerland, and Liechtenstein.

Conclusion

A revocable living trust can be a great tool for those looking to provide for their families and establish control over their assets. However, it's important to consider the pros and cons before deciding if this option is right for you.

The advantages of a revocable living trust include avoiding probate court, increased privacy, and easy asset transfers. The potential disadvantages include tax implications and ongoing maintenance requirements.