Many people use trusts as estate planning tools, and an especially popular type of trust is the revocable living trust. It's an arrangement that you make, while you're alive, for the management and distribution of your property. This type of trust offers significant advantages, but it also has disadvantages, so it's not right for everyone. Here are some of the pros and cons:
• AVOIDANCE OF PROBATE: Probate is the legal process under which your estate is administered when you die. It can be a slow and costly process. If you've transferred all of your property to your trustee before your death, all distributions of your property are handled through the trust, so there's no need for probate. This means that the distribution of your assets could potentially be much quicker and smoother.
• AVOIDANCE OF GUARDIANSHIP: If you become incapacitated to the point that you can't take care of your own affairs, and you haven't planned ahead for this situation, your family will need to go through court proceedings to have a guardian appointed for you. If you have a revocable living trust that's properly funded, then your trustee already has the authority to manage your financial affairs for you, and you should be able to avoid having a guardian appointed.
• PRIVACY: If you have a will that needs to be probated, that will is filed in court and becomes a matter of public record. This is not the case with a trust instrument. Under ordinary circumstances, a trust instrument will not need to be filed in court, so what you do with your property remains private.
• EXPENSE: There's an initial cost involved in drawing up the trust document, and there are also costs involved in transferring property to the trustee in order to fund the trust. Once the trust is funded, the trustee actually starts performing his or her duties in administering the trust, and that means he or she is entitled to be paid for those services. You should weigh the cost of establishing and maintaining a trust against the benefit you'll get from the trust.
• POTENTIAL INCONVENIENCE: Certain types of property, such as cars and Subchapter S stock, are more difficult to manage if they're held as trust properties. Also, there is additional bookkeeping involved in maintaining a trust. You should check with an estate planning attorney about what issues your particular situation might present.
• NO PROTECTION FROM CREDITORS: Because you can change or end a Revocable Living Trust at any point during your lifetime, the assets in the trust are not protected from creditors. Once you die, the trust property does not go through probate. If you're worried about creditor claims, this can be a disadvantage. Under probate laws, creditors have deadlines for making claims against an estate. If they miss the deadline, they lose the right to collect on the debt forever.
The revocable living trust is not a one-size-fits-all estate planning solution.
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