What are the Disadvantages of a Living Trust?
A living trust has its own set of drawbacks and complexities. The best way for you to determine whether a living trust suits your needs is to weigh benefits against problems, which you can effectively do if you are aware of the disadvantages. In this article, we will determine what the disadvantages of a living trust are and how to cost-efficiently draw up a living trust document.
Drawbacks of a Living Trust
As with all estate planning options, they each come with their own set of pros and cons. First of all, let’s go into the disadvantages of a living trust as follows:
- Setting up a revocable living trust requires serious legal expertise and typical prices can cost no less than $2,000. Whereas, the last will and testament only cost around $150.
- The work doesn’t end with simply creating a living trust document. You also need to exert time and effort updating and adjusting it according to life events such as the birth of a child or separations. Any new property you acquire, you also need to transfer it to the trust.
- Re-titling of the property after the trust was established takes additional time and additional fees may also apply.
- If you appoint yourself as a trustee and retain ownership interest, living trusts may not be able to protect your assets efficiently.
- If you appoint a financial or trust company as trustee, you need to pay additional advisory and trustee fees.
- A revocable trust doesn’t provide you with tax breaks and you continue incurring taxes on your asset’s gains or income.
- If you opt for a joint revocable trust and fail to educate your spouse on proper terms and purpose, you may have problems. There are also other concerns such as title insurance, subchapter S stocks, and foreign real estate that you need to consider.
Disadvantages of a Will
We can’t discuss the disadvantages of a living trust without going over the drawbacks of a will too. Nonetheless, both options allow you to protect your legacy and pass it on to your loved ones. Here below are some of the disadvantages of a will:
- A will doesn’t protect you from going through a winded and expensive probate process.
- A will is a public document which means that particulars of your estate will not be kept private.
- Although setting up a will costs less than a living trust, in the long run, it will cost more such as in the application of standard California probate fees.
Should You Do Nothing?
On the other end of the spectrum is doing nothing. Passing away without a will or a trust is called dying intestate. If there are any left assets such as real estate, bank accounts, and investments, you may expect any of if the following to happen:
|Scenario||What May Happen|
|The probate judge appoints your trustee||A trustee or executor is someone who will manage your estate and distribute assets to heirs. When picked by the court, it could be someone not related to you or your family.|
|Expensive costs of probate||Probate fees rise prohibitively when one dies. Although there are no upfront costs, the lawyer and court fees are cheaper than doing your due diligence.|
|Dying without a family||If you die without any family, your assets could escheat into government funds and you forfeit any control over your estate.|
|Losing control of the distribution of the estate||When your estate ends up at the probate court’s hands, you lose control over how your assets are distributed.|
Advantages of a Living Trust
It would not be fair to discuss the disadvantages of a revocable or irrevocable living trust without covering its advantages too. The biggest advantage of having a living trust is letting you avoid probate. Others are its ability to protect your privacy and the flexibility it offers. Here are some of them:
- Probate court hearings are expensive and time-consuming. The process requires going through multiple steps and even more if you have properties in other states. By avoiding probate, assets are allocated to beneficiaries more promptly.
- Unless it’s an irrevocable trust, a living trust provides flexibility by allowing you to alter or amend it several times while you are still alive.
- Living trusts are private even after your death. On the other hand, documents entered into wills are public records that anyone can access.
- Trusts cannot be challenged by discontented family members and you may specify to disinherit anyone who questions your wishes.
- Married couples may set up a joint living trust to properly segregate their separate assets from community assets.
- There is no need to obtain a durable power of attorney if you become impaired or disabled where the trust can automatically choose your trustee to oversee your estate. It can also control the spending habits of your minor children’s guardians.
- Your trustee can continuously manage your property allowing your property to grow. You can choose to limit the withdrawals to income only and include a special emergency fund.
- Although a living trust cannot minimize taxes on its own, applying a credit shelter trust provision transforms the living trust into a tool that reduces estate taxes for large estates that exceed the exclusion amount.
Use DoNotPay to Get a Living Trust Fast
Setting up a living trust comes with many benefits but it can also cost you a minimum of $2,000. Another option is to download a living trust form from the internet and fill it out by yourself. However, there is no knowing if the language these forms use is legally appropriate. That is where DoNotPay can help. Our AI lawyer helps users draw up a living trust that is technically correct but without the expensive fees. Here’s how:
- Sign-in to and go to the Revocable Living Trust service
- To begin, provide your state of residence
- Provide the details of your trustees and beneficiaries
- Distribute your properties and assets as needed
Voila! You will get your revocable trust ready in minutes!
We can help you set up living trusts in the following states:
|Washington State||New Jersey||Louisiana|
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