When it comes to estate planning, many people consider a revocable living trust to be a valuable tool. This type of trust helps people manage their assets during their lifetime. It also helps facilitate the seamless transfer of those assets upon their passing. This legal arrangement offers several benefits, but it also has certain drawbacks.
Exploring the advantages and limitations of a revocable living trust is important for anyone considering this estate planning option.
Benefits of a revocable living trust
A primary advantage of a revocable living trust is its ability to bypass the probate process. Probate can be time-consuming and expensive. With a revocable living trust, assets go directly to beneficiaries. This helps avoid the delays and costs associated with probate.
Unlike a will, which becomes a public document during the probate process, a revocable living trust allows for a more private transfer of assets. This confidentiality ensures that details of the estate, such as specific assets and distributions, remain private. The term “revocable” also highlights a key feature of this trust. The grantor has the option of altering or revoking it during his or her lifetime. This flexibility provides a sense of control, allowing individuals to make changes to the trust’s terms, beneficiaries or assets as circumstances evolve.
Drawbacks of a revocable living trust
Establishing a revocable living trust involves upfront costs, including legal fees for drafting the trust document. Also, the trust’s administration may require ongoing attention and management, making it more complex than a simple will.
Assets also must undergo proper transfer into the trust for this arrangement to be effective. Failure to fund the trust adequately may result in the inclusion of certain assets in the probate process, undermining one of the primary benefits. Also, while a revocable living trust offers probate avoidance and privacy benefits, it does not provide any direct tax advantages. Assets within the trust remain subject to estate taxes, just like those held outside the trust.
While there are notable benefits that come with establishing a revocable living trust, AARP notes that only about one in four Americans ever create living trusts or wills. Weighing the advantages of a revocable living trust against potential drawbacks is an important step in estate planning and management.