The revocable trust pros and cons allow you to transfer your assets to a trustee who manages them according to your instructions. You can modify or revoke this type of trust anytime, which is one of its primary benefits. There are, however, both advantages and disadvantages to using a revocable trust as an estate planning tool.
Our article will explore the pros and cons of revocable trusts, so you can decide if this estate planning tool is right for you.
Pros of Revocable Trusts
- Avoid Probate
After someone dies, probate is the legal process that distributes their assets according to their will or state law. Due to the involvement of the court, this process can be time-consuming, expensive, and public. You can avoid probate and ensure that your assets pass to your heirs privately and quickly with a revocable trust.
- Provide for Incapacity
It is also possible to provide for your incapacity with a revocable trust. A trustee can take over the management of your assets if you become incapacitated due to illness or injury. In the case of a business or other assets that require ongoing management, this is especially important.
- Flexibility
With revocable trusts, you can structure your assets and distribute them to beneficiaries in a variety of ways. The terms of the trust can be changed at any time to reflect changes in your family situation or financial situation.
- Privacy
Revocable trusts are private documents, unlike wills, which become public records when they are probated. Asset details and how they are distributed will remain confidential as a result.
Cons of Revocable Trusts
- Cost
Creating a will is generally less expensive than setting up a revocable trust. Keeping the trust may require ongoing administrative costs, as well as legal fees.
- Funding
Revocable trusts are only effective if assets are transferred into them. Your assets will have to be retitled in the name of the trust, which takes time and effort. Trusts can become ineffective if they are not properly funded.
- No Asset Protection
The assets of a revocable trust are not protected. You can still reach the assets in the trust, just as you could if the assets were in your own name.
- No Tax Benefits
There are no tax benefits associated with revocable trusts. For estate tax purposes, the trust assets remain part of your estate, so you cannot use a revocable trust to reduce your estate tax liability.
Conclusion of Revocable Trust Pros and Cons
Revocable trusts offer a number of advantages in terms of avoiding probate, providing for incapacity, and offering flexibility in how your assets are distributed. However, they also have some drawbacks in terms of cost, funding requirements, lack of asset protection, and no tax benefits.
Ultimately, whether a revocable trust is right for you will depend on your individual circumstances and estate planning goals. It is important to consult with an experienced estate planning attorney to determine the best approach for your situation.
What is the difference between a revocable trust and an irrevocable trust?
Unlike an irrevocable trust, a revocable trust can be modified at any time, whereas an irrevocable trust cannot be modified or revoked.
Who should consider using a revocable trust?
Revocable trusts are an excellent solution for people who want to avoid probate, plan for their incapacity, and have flexibility in how they distribute their assets.
How is a revocable trust taxed?
There is no tax return for a revocable trust because it is not a separate tax entity. Instead, the trust assets generate income and gains that are reported on your individual tax return.
How do I fund a revocable trust?
Transferring your assets into the name of the trust will fund a revocable trust. The trust is usually titled in the name of your bank accounts, investment accounts, and real estate.
Can I be my own trustee?
It is possible for you to serve as the trustee of your own revocable trust. During your lifetime, this allows you to maintain control over your assets. In the event of your death or incapacity, you will need to appoint a successor trustee to manage the trust.
Can I change my revocable trust?
You can change or revoke a revocable trust at any time, which is one of its major advantages. As your family situation, financial circumstances, or personal preferences change, you can adjust the terms of the trust.