Most people assume living trusts are only reserved for the wealthiest of individuals. At the same time, others sign them off as being overly complex and choose to use a last will and testament as the crux of their estate planning instead.
In reality, living trusts are one of the most powerful estate planning tools that almost everyone can use. Still, this doesn’t mean they’re perfect.
Let’s go over both the advantages and disadvantages of revocable living trusts - by the end, you’ll know enough to be able to make the best choice for your family’s future.
Advantages of Revocable Living Trusts
Living trusts are popular for a variety of reasons, some of which include:
1. Avoid Probate
Once you put your assets into a trust, your estate will avoid probate. Since the trust practically “outlives” the grantor (the creator of the trust), it can transfer the property included to the individual the grantor has assigned in the formation of the document. In other words, this process doesn’t need to be overseen by the court since the assets are technically owned by the trust.
This is by far the biggest pro of a living trust and is especially important for those who own real estate in multiple states.
2. Immediate Access to Funds
A living trust also provides your heirs with immediate access to funds. With other estate planning documents, like wills, it’s necessary to wait until the probate is opened (several weeks) until you gain access to the deceased’s bank accounts. This makes it difficult to cover funeral costs at an extremely challenging time.
3. Avoid Court-Supervised Guardianship
Living trusts can also benefit you while you’re alive. For instance, they can help your family avoid dealing with a court-supervised conservatorship or guardianship if you’re incapacitated. In cases where your assets are still in your name and you’re facing temporary or permanent incapacity, everything you own is subject to guardianship.
On the other hand, creating a revocable living trust allows you to name a successor trustee who will step in and manage your affairs if you’re unable to do so. This individual can control the trust assets without supervision from the court.
4. Keep Your Family Affairs off The Record
Probate in Florida is a public proceeding, meaning each member of the public can hypothetically go to the courthouse and access all the estate documents filed there. In some counties, it’s even possible to find these filings online.
This means that anyone can see how you distribute your assets and find the names involved, as well as the assets that each family member inherited.
Since trust documents don’t need to be filed with a court, they won’t be a part of public records, thus ensuring your private affairs stay private.
Disadvantages of Revocable Living Trusts
While the positive sides are astounding, there are also disadvantages of revocable living trusts you should be aware of, such as:
1. Can be Expensive and Complex
You can complete a valid will within a few hours, but living trusts take a lot more time to complete. It also costs a lot more to set up and fund a trust. Keep in mind that probate also costs money, so consult an estate planning attorney to learn which method is more cost-effective in your situation.
After you set up a trust, you have to create documentation that allows you to transfer the ownership of your assets into the living trust. This means you’ll have to take enough time to contact your bank, insurers, transfer agent, investment company, and so on.
You also need to change stock and account ownership and update the beneficiaries, which requires issuing of new stock certificates. It’s also necessary to retitle any vehicles or boats.
All of this takes a lot of work, which is one of the biggest disadvantages of revocable living trusts. For some people, it’s simply not worth the effort and the money, especially if they don’t plan on fully funding the trust.
2. You May Still Need a Will
If you acquire additional assets and forget to transfer them to the trust, it may end up only partially funded when you pass away. Believe it or not, this happens more often than you think, more so if a significant amount of time has passed since the trust was created.
As a backup, many people create a special “pour-over will” that accounts for the assets they failed to transfer into a trust. As the name suggests, the will pours over the assets into the trust when you pass away.
Although this will must enter probate, it’s still a useful tool that sees to it that all your assets are accounted for.
It’s also worth noting that some assets can’t be transferred to the trust. This includes jointly owned assets and retirement plans. For example, you’re not allowed to transfer half of your home into the trust if you only own it as a joint tenant. To avoid probate for these assets, speak to an estate planning attorney.
3. Extended Time to Contest
In Florida, there are rules about who can contest a will and the time within which they are legally allowed to do so. At the moment, the time limit for contesting a will in the Sunshine State is 90 days.
In contrast, a revocable living trust can be contested for a whopping six months.
Since any contest will put a temporary stop to the division of the assets, you’re safer if you choose an estate planning tool with a shorter time frame to contest.
Is a Living Trust Right for You?
Now that you are aware of both the advantages and disadvantages of revocable living trusts, you’re one step closer to deciding which real estate planning tool is right for your situation. Each situation is different and to make the most out of your estate plan, you need to consult a legal professional.
Thankfully, you can always rely on and our estate planning services to settle your affairs. We’ve been a mainstay on the Florida legal scene for 20 years, and we’ve helped many clients create robust estate plans that accounted perfectly for the needs of their families.
You can get the same - call 561-656-0200 or fill out our contact form.
Note:
The information in this blog post is for reference only and not legal advice. As such, you should not make legal decisions based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such relationship be implied. If you need legal counsel, please consult a lawyer licensed to practice in your jurisdiction.
