The Pros and Cons of Revocable Living Trusts

A revocable living trust is about more than just avoiding probate

Fountain pen lying on top of a living trust document
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The whole concept of a living trust has a certain mystique. You might think they're only for very wealthy people, or that they're a lot more difficult to create than a simple last will and testament. But they can be a perfect estate-planning tool for others.

Revocable living trusts come with both pros and cons, from avoiding probate to the costs associated with setting one up. Deciding if one is right for you can depend on your personal concerns and circumstances.

Pro No. 1: Avoid Probate 

Assets held in a trust avoid probate because the trust itself doesn't die with its creator—called the grantor or trustmaker in legal terms. The trust remains up and running after the death of its grantor, and it can transfer its property to anyone the grantor has provided for in the trust's formation documents, according to the grantor's own terms. There's no need for court oversight or involvement.

Probate avoidance is probably the greatest advantage of a revocable living trust. It can be a particularly important consideration if you own real estate in more than one state because your loved ones would face with two or more probate proceedings in this case if you just leave a will. Each property would have to be probated where it's located.

A revocable living trust can also give your loved ones almost immediate access to cash during a difficult time. Your loved ones are typically unable to gain access to your bank account until a probate estate has been officially opened. Ask yourself how they'll pay for funeral costs and other necessary expenses until this time.

Opening a probate estate can take several weeks.

Pro No. 2: Avoid Guardianship or Conservatorship

Revocable living trusts aren't just about death. They can allow your loved ones avoid both a costly court-supervised guardianship if you become disabled as well as a costly court-supervised probate proceeding after you die.

Your loved ones and your property would be subject 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 tend to your personal affairs yourself.

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

Your trust's provisions are your provisions—you establish them when you create the trust.

Pro No. 3: 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. Strangers can even look up court dockets and filings online in some states. Anyone can see the extent of what you owned to leave to others, and they can find out who got what when probate is opened and your will is placed with the court.

Trust documents are never filed with a court, so they don't become a public record.

Con No. 1: Funding a Trust Is Expensive...And a Pain 

It generally costs more time and money to set up and fund a revocable living trust than to simply write a will—as much as three times more, at least initially. But in actuality, the cost can end up being pretty comparable because probate costs money, too. That expense would have to be added to the cost of writing a will for a fair comparison.

You must create new deeds and other documents to transfer ownership of your assets into the trust after you form it. You'll have to contact your bank, investment and insurance companies, and transfer agents. You'll have to change account and stock ownership and update beneficiaries. New stock certificates must be issued. Cars and boats must be retitled.

This is the major drawback to using a revocable living trust for many people, but it's not worth the time, money, and effort to create one if the trust isn't fully funded. The type of assets you own and what must be done to get them funded into the trust should be carefully considered before you decide to use this estate-planning tool.

Con No. 2: You'll Still Need a Will and an Estate Plan

Your trust might only be partially funded when you die if you acquire new assets and neglect to move them into the trust. It can be surprisingly 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 in this case. The will "pours" them into your trust at the time of your death, as the name suggests. Your pour-over will must be probated, but it can still be an invaluable worst-case-scenario backup tool. 

Additionally, some assets can't be owned by a trust. These include certain retirement plans and assets you might hold jointly with someone else. For example, you can't transfer ownership of your half of a house to your trust if you own it as a joint tenant. You'll need an alternate means of moving ownership of these assets, but you can still avoid probate if you make use of beneficiary designations.

Con No. 3: 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 living 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 even longer.

Several states have begun to close this gap by enacting specific laws that severely restrict the timeframe for challenging a trust. 

The Bottom Line 

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