Most people are familiar with a will but not as many are familiar with a trust or how it may benefit them during an estate planning process. There is a myth that trusts are only for rich people and that they are much more difficult to create than a will. In reality, trusts are very easy to create and are suitable for almost anyone who has an estate. It is important to know that there are several types of trusts and the two key types include revocable and irrevocable trusts. However, all living trusts have their pros and cons and determining if a living trust is right for you depends on your financial circumstances and personal preferences. Let’s take a look at answering, what are the advantages of a living trust? What are the disadvantages of a living trust?
ADVANTAGES OF A LIVING TRUST
- Avoids Probate: In general, assets held in a living trust avoid probate. The trust remains active even after the death of the grantor and allows for the transfer of assets to anyone named in the trust document. This transfer of trust assets to the beneficiaries does not require any oversight from the courts. For most people, the avoidance of probate is the biggest advantage of a revocable living trust. This can be immensely important if you own real estate properties in multiple states where your beneficiaries would most likely have to go through the probate process if you left only a will.
- Quick access: A revocable living trust also provides your beneficiaries quick access to the assets if there is a financial hardship. In the case of a will, the beneficiaries would have to wait for months, or possibly even years, before they could have access to the assets.
- No Guardianship or Conservatorship: With a revocable living trust, there is no need for a guardian or court-supervised guardianship if you become disabled. Having a guardian is an expensive affair that can quickly use up a significant amount of your assets. In addition, if you are disabled or incapacitated, guardianship or conservatorship also comes with many restrictive rules and limitations.
- Name a successor trustee: With a revocable living trust, a successor trustee can be named to take over management of the trust if you are no longer able to take care of your personal and financial affairs in the future. Further, the successor trustee can start to manage your assets without any interference from the court, even if you become disabled or incapacitated.
- Management of the trust: All the provisions in the trust are yours and you are at liberty to create new ones or rescind the old ones.
- Privacy: With probate, there is no privacy as the proceedings are public. Any person can go to the local court and look up all your probate documents, including your will. Even a stranger or a beneficiary can know who the other beneficiaries are and what assets they received. On the other hand, trust documents are not for the public and no one can know the contents.
DISADVANTAGES OF A LIVING TRUST
- Expensive venture: To set up a living trust is slightly more expensive than creating a will, perhaps by as much as double or triple. There are also administrative fees that include payment to the trustee for maintaining the trust. While this may sound exorbitantly expensive, do not forget that with a will, you also have to pay for probate and at the end of the day, the costs for both are fairly similar.
- Hassles in the setup: To create a trust, much more documentation is required as compared to a will. If there is real estate involved, you need to obtain and change the deed. In addition, you have to ensure the proper transfer of your assets into the trust that you have created. Any mistake you make during the transfer can result in the beneficiaries not being able to access the assets. You will need to get in touch with your financial institution and lenders, insurance and investment companies, and transfer agents. You will need to change your stock and account ownership and update the names of the beneficiaries in your policies. As well, new stock certificates need to be insured and any boats and motor vehicles have to be retitled. The government is very finicky about titles and ownership papers and the onus is on you to make sure that everything is correct. If any asset does not have a title or ownership document, you will have to list it as an Assignment of Property on a separate document. Items like furniture, appliances, electronics, books, musical instruments, and many other properties are usually handled in this manner.
- Creditors and lienholders: With an irrevocable trust, the assets are beyond the reach of creditors and lien holders, but this is not so with a revocable living trust. If you want to protect your assets other than by using an irrevocable trust, you may want to form a limited liability company or a joint partnership.
- Difficult refinancing: Sometimes financial institutions will not readily finance trust property since the title is in the name of the trustee, which may be a person or a legal entity. Lenders want to be reassured that they will be repaid and, hence, the trustee must have a copy of the trust agreement to show the banks. The trustee has to prove that he or she has the power and authority to conduct business on behalf of the trust.
- Not all assets are for a trust: Not every asset can be placed in a trust. Some assets, such as those that are jointly held with someone else or retirement plans, cannot be placed in a trust. For example, if you and your brother have joint ownership of a rental property, this cannot be placed in a trust. Other things, like motor vehicles, life insurance, Health Savings Accounts, and Medical Savings Accounts also cannot be entered into a trust. Thus, you may also have to make a will in such scenarios.
These disadvantages of a living trust can deter people from creating one. Some people do not think it is worth the money or time. However, probate is potentially more troublesome. Even after 6-9 months, probate cases may still not be resolved, and complex cases can take years to conclude. When a living trust is created properly, it offers a great way to transfer the estate to the beneficiaries without hassle.
Finally, if the trust is not adequately funded, then it may not make sense to move forward. Before you create a trust, make a list of your assets, and understand what you must do to get them funded into the trust. The best person who can advise you on such matters is, of course, a knowledgeable attorney who has experience in these areas.
What are the disadvantages of a living trust? What are the advantages of a living trust? While you may or may not want to create a trust, you will still need an estate plan that will help you disperse your assets to your beneficiaries. Understand the pros and cons of the living trust before making your decision; speak with an attorney today. At Elder Law, P.A. we specialize in trusts and wills, along with many other areas that are of great importance to seniors. Call us today at 1-561-933-4465 to find answers to your questions.