A revocable trust is a component of estate planning which allows the provisions to be altered or canceled by the grantor. When income is earned within the trust, it is distributed to the granter. Upon death, the property then transfers to the trust’s beneficiaries.
Here are the pros and cons of a revocable trust to consider.
List of the Pros of a Revocable Trust
1. It offers an income stream for the grantor.
A revocable trust is often referred to as a “living trust.” That is because it can be used by its creator for income while still alive. Then it can be used as an easy method of distributing wealth through an estate after death.
2. It allows for personal control.
In most situations, the creator of the revocable trust can act as the trustee and the beneficiary, which means you’re always in control of the assets which you own. At the same time, it also allows for incapacity protection. The person you’ve named to take over the trust can do so while you are still alive to keep all financial affairs within the family. You’re able to avoid the issue of a conservatorship through the structures of a revocable trust.
3. It avoids the issue of probate.
When an estate is being distributed as an inheritance, some families decide to use a revocable trust to make the process easier. In most situations, the presence of a living trust eliminates the time and expense of probate. Unless there is an unusual situation, courts typically stay out of the plans of a living trust.
4. It offers protection from court challenges.
Challenges to a will are rare. Challenges to a living trust are even rarer. If a lawsuit is filed against a living trust, however, it is more difficult to be successful than a lawsuit against a will. That is because the creator of the living trust stays involved with it, providing evidence that you were competent in the decisions being made.
5. It protects your privacy.
A revocable trust is a private document which includes all involved parties. It does not become part of the public record. That means no one is able to go through a public records search after you pass away to see who got what in your decision to distribute your estate. That is an advantage a standard will is unable to provide.
List of the Cons of a Revocable Trust
1. It excludes some asset types.
Not every type of financial asset you may own qualifies for inclusion with a revocable trust. The most common account type that is excluded is a retirement account, because it would create tax acceleration consequences.
2. It provides no tax advantage.
A revocable trust is a mechanism that makes is easier to distribute wealth to your heirs or create a safer form of income for yourself from standard assets. There are no tax advantages found with this option. If you’re wanting to save on estate taxes or income taxes, then you’ll need to use an irrevocable trust and give up some control over some of the assets.
3. It requires retitlement.
If you’re going to start a revocable trust, then you must retitle all of your assets to permit them to be held by the trust. That is the only way for the benefits of this trust option to be realized. Then the entire estate must be monitored to ensure that the objectives of the trust are being met. Should you choose to not retitle an asset, or you forget about an asset, then it will fall outside of the trust and be dealt with separately.
4. It comes at a higher cost.
The cost to have an attorney draft a living trust arrangement for you in the United States begins at $1,000 in most geographic locations. For a married couple, the cost to prepare a living trust can be as high as $2,500. For that reason, it may not be the right option for everyone. It is one of the more expensive options available for estate planning today.
The pros and cons of a revocable trust are designed to help individuals and couples make important decisions about their finances near the end of their life. It is a way to avoid probate and confrontation while still providing an income source that can be used. It does take time and comes with an added cost, which is why this choice should be discussed with your financial advisor before a final decision is made.