There have been many advertisements and websites that tout the benefits of a living trust, but like other estate planning tools, it may not be suitable for each and every estate. While there are certainly many benefits, we need to review the disadvantages as well.
The Disadvantages of a Living Trust
A trust, whether a living trust or any other type, is a complex legal document and agreement, and as such, a trust is more work to create than other estate planning tools that avoid probate. To fund a living trust, assets must be transferred to the trust, which can be a time-consuming process. In particular, if a living trust will be holding real estate, an updated deed for each property must be prepared and recorded.
Refinancing real estate may also be difficult for real property held by a living trust. Many banks or mortgage companies will require real estate to be held by the loan applicant while they are refinancing. A trustee, the person managing the trust, may need to remove the property from the trust during the financing process and then return it when the transaction is completed and recorded. Again, this may be time consuming.
The initial cost of setting up a trust may be a disadvantage for more modest estates, particularly since they may qualify for a shorter, less expensive probate process, thus reducing that advantage of a living trust.
The Advantages of a Living Trust
Many are familiar with the primary advantage of a living trust, avoiding probate, which allows property to pass more quickly after the grantor, the person who created the trust, has passed. Besides avoiding probate, a living trust offers asset protection when it becomes irrevocable upon the death of the grantor. This offers advantages for the beneficiaries, should they have issues with a creditor or litigation.
A living trust also offers an incapacity plan for the grantor. Should a grantor no longer be able to make financial and business decisions, a successor trustee can take over the management of trust property without court authorization. In addition, a living trust is revocable while the grantor is alive, meaning the terms of the trust may be changed or even revoked at any time.
A living trust attorney can best advise you regarding a trust, and weigh both the advantages and disadvantages to determine if this estate planning tool is best for your family’s goals and needs.