One type of trust that is commonly used by estate planning lawyers is the revocable living trust, which allows you to retain control over your personal assets. However, revocable living trusts aren't for everyone. In some cases, the disadvantages can outweigh the benefits.
A Revocable Living Trust Gives You Control
As the name implies, a revocable living trust takes legal effect during your life rather than at your death. Since it's revocable, you always have the options of changing the terms of the trust, such as adding and removing beneficiaries, or canceling the trust entirely. This flexibility is seen as an advantage by many people, because you can't always predict your future financial needs or whether relationships with beneficiaries will become strained.
You Can Use a Revocable Living Trust in Place of a Will
Many estate plans use revocable living trusts as a substitute for a will either entirely or for specific assets. Wills may be subject to probate proceedings in a state court after your death. During probate, there's always the possibility that a family member who is excluded from your will may challenge the terms of your will. Moreover, probate usually delays the distribution of your estate. With a revocable living trust, however, your assets can be distributed immediately. They aren't subject to probate or to challenges by those who aren't named as beneficiaries.
Make Sure That an Irrevocable Living Trust Isn't a Better Option
One of the main disadvantages to creating a revocable living trust is that the trust property is still considered yours and isn't protected from your creditors or lawsuits. Making the living trust irrevocable provides more creditor protection since you're no longer considered the owner of property in the trust. The downside to irrevocable trusts, of course, is that you can't change your mind if you ever need your assets back at some point.
Consider the Estate Tax Implications
Since you're considered to be the owner of all assets in your revocable living trust at the time of death, the value of your trust property may be subject to federal and state estate taxes. Check carefully, because state tax laws change frequently.
A Trusts and Estates Lawyer Can Help
The law surrounding revocable living trusts is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a trusts and estates lawyer.