The Pros and Cons of Revocable Living Trusts

It's about more than avoiding probate

Living Trust and Estate Planning Documents
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Maybe you know of a friend or a family member who has recently created a revocable living trust. The whole concept has a certain mystique. Aren't they just for really wealthy people? Why would anyone want to go to all that trouble when he can just sit down and write a will? 

In fact, living trusts aren't for everybody, but they can be a perfect estate-planning tool for others depending on their concerns and their circumstances.

Like so many other things in life, they come with both pros and cons. 

Pro No. 1: You Can Avoid Probate 

Probate avoidance is probably the greatest advantage of a revocable living trust. Why subject your loved ones and your property to the restrictive rules of probate court when you can easily avoid it by funding a trust?  

This can be a particularly important consideration if you own real estate in more than one state because your loved ones will be faced with two or more probate proceedings if you just leave a will. Each property would have to be probated where it is located.

A revocable living trust can also give your loved ones almost immediate access to cash during a difficult time. Compare this with the time it takes to open a probate estate and for your loved ones to gain access to your bank account. It could take anywhere from a few weeks to several months. 

Pro No. 2: You Can Avoid Guardianship or Conservatorship Proceedings 

Revocable living trusts are not just about death.

They can address certain issues while you're living, too.

Why subject your loved ones and your property to the restrictive rules of guardianship or conservatorship if you should become incapacitated? Forming a revocable living trust involves naming a successor trustee, someone to step in and manage the trust for you if a time comes when you're no longer able to do so yourself.

After following the trust's provisions for determining your incapacity, your successor trustee can take control of your trust assets without the interference of the court. 

Pro No. 3: You Can Keep Things Private  

Probate is a public proceeding. Anyone can go to the courthouse and take a look at each and every document filed there, including your will. In some jurisdictions, strangers can even look up court dockets and filings online.

When probate is opened and your will is placed with the court, anyone—anyone at all—can read it, see the extent of what you owned to leave to others, and find out who got what. Trust documents are never filed with a court so they don't become a public record for everyone to see. 

Con No. 1: Upfront Costs Can Be High 

It generally costs more in time and money to set up and fund a revocable living trust than to simply write a will. Even after you form the trust, you must create new deeds and other documents to transfer ownership of your assets into it.

But the overall time and money spent will probably be less in the long run. The trust will allow your loved ones to avoid a costly court-supervised guardianship if you become disabled and a costly court-supervised probate proceeding after you die.

Remember, deeds and documents transferring ownership must be created after your death, too. You're just paying those costs in advance when you form a trust—but your loved ones won't have to pay probate fees on top of it. 

Con No. 2: Funding a Trust Is a Pain 

You have to contact your bank, investment and insurance companies, and transfer agents. You have to change account and stock ownership and update beneficiaries. New stock certificates must be issued. Cars and boats must be retitled. For many people, this is the major drawback to using a revocable living trust as their primary estate planning tool.

But if the trust isn't fully funded, it's not worth the time, money, and effort to create one. The type of assets that you own and what must be done to get them funded into the trust should be carefully considered before you decide to use one.

Con No. 3: You'll Still Need a Will 

If you get frustrated or sidetracked when you're funding your trust or if you simply don't have enough time to do it properly, your trust will only be partially funded when you die. It's also very easy to forget to transfer title to newly acquired assets to your trust as time goes by.

You'll need a special type of will called a pour-over will to "catch" your unfunded assets and "pour" them into your trust, and your pour-over will must be probated. But a pour-over will can be an invaluable worst-case-scenario backup tool. 

Con No. 4: Your Heirs Have Longer to Contest a Trust 

Most states have specific statutes that dictate who can challenge a last will and testament and how long they have to do so. The time period can be as little as 30 to 90 days.

Contrast this with contesting a trust, which until recently was a wide open court proceeding subject only to state-specific ​statutes of limitation. These statutes are usually one to five years, but they're sometimes longer. Several states have decided to close this gap, however, by enacting specific laws that severely restrict the time frame for challenging a trust. 

The Bottom Line 

When you're tackling something as important as estate planning, it's important to speak with a legal professional so you're sure you completely understand all the pros and cons of your decisions. This article is intended to convey general information only and might not apply directly to your unique concerns. It's not legal advice. For that, you'll need an attorney