Setting up a trust requires serious legal assistance, in which isn’t cheap. A typical living trust may cost $2,000+, whereas your basic last will and testament can be created for around $150 or so.
Advantages of the Living Trust
Avoiding probate is the primary advantage of setting up a living trust, but other advantages such as privacy protection and adaptability make it a wise choice.
Avoidance of Probate
Probate is a legal process for the transference of your property when you pass away. It has the requirement of submitting documentation to a probate court and undertaking a multistep process – or processes when you have assets and/or property in different states. Setting up a revocable living trust avoids costly probate proceedings, enabling assets to be transferred to beneficiaries quicker. Assets designated in the trust bypass the expensive courts and usually take priority over the property designated in the will.
Changeable and Flexible
The living trust enables you to make alterations (or amendments) to your trust document when you are still living, as you see fit.
Revocable trusts are a wise choice for those worried about retaining records and details about assets private following your passing. Probate processes that wills are affected by can make your estate an open-book since documents entered in it becomes public record.
Eliminate Challenges to the Estate
A standard will could create family disputes at your passing and be contested for modification by any members of your family. By using a trust, you can dis-inherit anyone that questions your wishes when you pass.
Separation of Assets
This is valuable for married couples that have significant separate property that was obtained before the marriage. The trust can help separate those assets from the joint property assets.
Assignment of Durable Power of Attorney/Guardianship
Living trusts can be used to assist in controlling a guardian’s overspending for the benefit of any minor children. It can also allow another individual to act on your behalf should you become debilitated and require someone in making decisions for you. If you become debilitated or disabled, the trust can systematically designate your trustee to manage it and your financial matters without the requirement to acquire durable power of attorney.
This enables the wealth that you’ve accrued to continue to increase for multiple generations by utilizing a professional trustee for the management of your property. You could restrict the number of withdrawals to just income, with special emergency funds if you desire.
Estate Tax Minimization
Whereas the revocable living trust isn’t a good tax minimization device on its own, funds may be included in the trust document to transfer wealth by setting up a credit shelter trust should you pass away. The credit shelter trust is an amazingly effective device to help decrease estate taxes for larger estates that surpass the collective estate tax exclusion totals.
Establishing the Living Trust
The trust is established as a written agreement or statement appointing a trustee to oversee and manage the property of the grantor. If you’re a capable adult, you are able establish a revocable living trust. Being the grantor, or creator of the trust, you can designate any capable adult to be your trustee; some individuals have a preference to opt for a financial institution or a trust company to take on this role. As the grantor, you may also act as trustee during your lifetime.
After it’s set up, you start by putting your assets—comprising of holdings, financial institution accounts, and real estate—into the trust. time you are no longer owner of those assets; they are part of the trust. And since your assets are a part of the trust, they do not have to go through probate following your passing. (Basically, the trust is a sort of rule book for how your assets are to be administered when you pass away.)
Nevertheless, because this is a revocable living trust, you maintain management of the assets, although they no longer belong to you, when you are still alive. You can change or modify the trust any time you wish. Income gained by the trust’s assets is received by you and can be taxed; but the assets on their own won’t be transferred from the trust to your beneficiaries until you pass away.
Disadvantages of the Living Trust
Whereas there are a lot of advantages for the establishment a revocable living trust, it also comes with drawbacks:
Cost of Planning
The establishment of a revocable living trust requires significant legal help, which is going to be costly. A commonplace living trust could cost $2,000+, whereas a typical last will and testament may be written up for around $150 or so.
Maintaining Trust Books and Records
After the trust is created, your work is not finished. A lot of individuals need to monitor it annually and make modifications as required (trusts do not adjust systematically to changed situations, like divorce or a child being born). You should think about the added inconvenience of making sure future assets are continually registered in the trust and providing other individuals with accessibility to the trust documentation to examine trustee powers and responsibilities.
Retitling of Property
After the trust gets established, property needs to be retitled in the name of the trust. This needs added time, and occasionally fees apply to processing title modifications.
Minimal Asset Protection
Contrary to what people believe, revocable living trusts provide very little asset safeguarding if you keep an ownership interest, like appointing yourself as trustee.
Anticipate contending with added professional costs like investment advisory and trustee costs when you appoint a financial institution or a trust company as the trustee.
No Tax Break
For all your sweat and tears, you are not going to receive a tax benefit from your revocable trust. The assets in the trust are going to continually acquire taxes on their gains and/or income and are liable to creditors and legal actions.
Obstacles like issues with title insurance, Sub-chapter S stock and real estate in other countries may create a whole plethora of new problems. More issues can rise up when you fail to properly educate your spouse on the condition and purpose of the trust.
In comparison with wills, revocable trusts offer increased privacy in addition to more authority and adaptability over asset allocation. Having a revocable living trust, you accomplish a lot of the work up-front, making your estate disposition of straightforward and quicker. However, they also need significantly more effort and higher expense. Like with any important legal issue, you should speak with a trustworthy professional, in this case, an individual proficient in estate planning, prior to taking on a project of this degree.
Palmer, B. (2020, October 22). Should you set up a revocable living trust? Retrieved April 14, 2021, from https://www.investopedia.com/articles/pf/06/revocablelivingtrust.asp
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