Did you know that 13% of Americans with estate planning documents reported having a living trust, according to Caring.com? This is a smaller percentage compared to those with wills, which is 24%.
When it comes to planning for the future, many people hear about something called a revocable living trust. It can help avoid probate, keep things private, and give you more control over your money and property.
Revocable living trusts come with potential downsides that need to be thought about carefully before deciding to get one. One of the disadvantages of revocable living trusts is that they’re not protected from creditors, so if you owe money to a company, the IRS, or another entity, you still have to settle your debts.
This article will give an overview of revocable living trusts so that you understand when it best fits your estate planning needs.
Understanding Revocable Living Trusts
A revocable living trust can be set up as an estate-planning method to keep ownership and control of one’s assets. The grantor who created the trust is usually the trustee so that there is flexibility in the planning of one’s estate.
You can alter or cancel revocable living trusts anytime you wish. Unlike wills, revocable living trusts do not have to undergo the time-consuming probate process. It gives you another layer of privacy since its terms do not enter into the public record.
According to estate litigation lawyer Andrew M. Meinzer, it is not always a guarantee that all parties involved in the estate plan will be satisfied with the established trust. You must schedule a consultation with a lawyer to check the trust and the overall estate plan’s feasibility. Knowing your plan has undergone a thorough legal review and complies with all applicable laws will give you peace of mind.
Advantages of Revocable Living Trusts
One of the primary benefits of the revocable living trust is to bypass probate, which can be exhausting and expensive for your heirs. It allows for a speedy distribution of your assets in privacy without any delay or interference by probate courts.
You may always alter the trust, controlling it entirely during your lifetime. If there are circumstances where you become incapacitated, you can have your successor trustee act on your behalf without the need to seek court approval.
Disadvantages of Revocable Living Trusts
If you know what the downsides of revocable living trusts are, you can make smart choices about how to prepare your estate. Since revocable living trusts usually need a lawyer, they are more involved and expensive to set up than a basic will. Assets in a revocable living trust are considered your own and are included in your taxable estate and they are not deductible for estate taxes.
They do not provide for asset protection. The creditors can access your assets in your lifetime. Another problem could be improper funding. If you do not transfer assets properly into the trust, the intended benefits may never come about.
Weigh these considerations when implementing a revocable living trust with an estate.
Alternatives to Revocable Living Trusts
Depending upon the kind of estate planning you require, there are some other alternatives worth exploring besides a revocable trust.
One option is a will that specifies how property is to be divided among heirs after one dies. It goes through probate but might be an easier and cheaper alternative compared to a trust.
Another option is payable on death (POD) accounts, where money in bank accounts goes directly to beneficiaries without going through probate. Joint ownership is another option in which assets automatically pass to the surviving owner without going through probate.
Providing an inheritance through a life insurance policy is another option that can bypass the need for a probate.
You can better decide what your estate needs are if you know the pros and cons of these available alternatives.
Making the Right Choice for Your Estate Plan
How are you to go about approaching your estate plan in the best way? Begin by assessing your situation.
Evaluate your assets, family relationships, and desires. Living trusts offer flexibility and spare the process of probate but might not be necessary. When your estate does not have any complications, a simple will might serve well for your estate planning.
Check the needs of the heirs when establishing the estate plan. Would they need direct access to the assets, or should it be structured for them to receive money over time? Meet with a lawyer to discuss these options and the choices available to you.
Revocable living trusts aren’t for everyone. Many people enjoy the avoidance of probate, which means confidentiality for them.