Last updated on: August 14, 2024
Table of Contents
A revocable living trust is similar to a testamentary trust, but it is established while you are alive, and you have the power to change it or adjust it as you see fit. It has a trustee that will administer the funds and beneficiaries. In this type of trust, you can be both the trustee and the beneficiary if you so desire. You can also set up a non-revocable living trust, which means that you cannot alter or destroy it after it has been established.
This financial tool has both advantages and disadvantages, and whether you should use it will depend on your goals for the trust. Consider the following pros and cons before you decide whether setting up a living trust is right for your unique situation. It is important to speak with a New Jersey living trust attorney before you make any decisions. At Matus Law Group, our attorneys have extensive experience in handling estate planning matters and can provide guidance tailored to your specific needs, including choosing a trustee. We can assist you in understanding the intricacies of living trusts and help you make an informed decision. To schedule a consultation with one of our attorneys, contact us at (732) 785-4453.
Advantages of a Living Trust
Although living trusts are not used as often today as in the past, there are still some distinct advantages to establishing this type of trust.
- Avoiding probate court. The most common reason that individuals develop a living trust is because they can use it as a will substitute. Upon your death, a living trust will convert into a testamentary trust. Your loved ones will not have to probate anything in your trust, and assets can be distributed much faster and easier according to your instructions provided with the trust.
- Privacy concerns. If you use your living trust as a will substitute, you can avoid potential privacy concerns regarding probating a will. Probating a will is a public proceeding, and many people would like to avoid having their asset distribution in the public eye.
Disadvantages of a Living Trust
Some of the disadvantages of living trust really stem from misunderstanding the purpose and use of this estate planning instrument. For example, some people assume that any and all trusts are useful asset protection tools. This is unfortunately not the case; most living trusts will offer no asset protection. However, if you establish a revocable living trust where you are not the beneficiary, then that may be an asset protection tool. Other disadvantages include:
- Limitations on transfers. Once you move your assets into a trust, you must follow the trust document’s instructions on assignments. You are also not permitted to put joint assets into a one-person trust, including some IRAs and retirement plans.
- No tax avoidance. For the most part, you are unable to completely avoid paying taxes on living trusts. There are ways that you can reduce taxes, but total avoidance is rare.
- Increased contesting period. Most wills have a short contest period of just 30 to 90 days. Living trusts have an increased period of between one and five years, depending on the assets where the trust is located. This increased time means that conflicts can still crop off long after you pass.
| Living Trust | Type | Description |
|---|---|---|
| Probate Court | Advantage | Avoidance: Can act as a will substitute, allowing for faster and more efficient distribution of assets. |
| Privacy | Advantage | Protection: Using the trust as a will substitute can protect from privacy concerns associated with public probate proceedings. |
| Transfers | Disadvantage | Limitations: Requires adherence to trust document’s instructions on asset assignments. Joint assets, including certain IRAs and retirement plans, cannot be placed into a one-person trust. |
| Taxes | Disadvantage | No complete tax avoidance: Total avoidance of taxes is rarely possible with living trusts, though there may be ways to reduce them. |
| Contesting Period | Disadvantage | Increased: The contest period for living trusts can range from one to five years, potentially leading to conflicts long after passing. |
What are the Disadvantages of Putting Your House in a Trust?
Placing your house in a trust can be advantageous, but it also has its downsides. It’s important to be aware of these potential drawbacks to make an informed choice about whether a trust aligns with your estate planning needs.
- Expense: Setting up a trust is generally more costly than creating a will. Due to the intricate nature of trusts, legal assistance is often necessary, which can substantially increase the initial expenses.
- Ongoing Management: Trusts require continuous oversight. Transferring your house into the trust involves a time-consuming process of retitling the property. Additionally, other trust-related tasks, such as updating beneficiaries and managing trust assets, can add to your responsibilities.
- Complexity: Trusts are more complex than wills, which can make them harder to establish and administer. This complexity is especially pronounced if you have a large estate or a complicated family situation, potentially requiring additional legal and administrative efforts.
- Additional Documentation: Moving your house into a trust demands extra paperwork, such as creating and signing a new deed to transfer the property’s title to the trust. This added documentation can be burdensome for some individuals.
Recognizing these drawbacks is essential when deciding whether to place your house in a trust. Each situation is unique, so consulting with a legal professional can help determine the most suitable option for your specific circ*mstances.
Disadvantages of Revocable Living Trusts
Revocable living trusts offer valuable advantages as estate planning tools, but they also come with certain disadvantages. Here are the disadvantages associated with revocable living trusts:
- Creditors: Assets held within a revocable trust are typically vulnerable to creditors or legal judgments against you, such as those arising from a personal injury lawsuit. The fact that you retain ownership and control over the property during your lifetime enables you to modify or revoke the trust, but it also leaves the assets accessible for the satisfaction of debts. Creditors can petition the court to access the trust to settle outstanding debts, leaving you with limited protection against such actions.
- No tax benefits: Unlike an irrevocable trust that may help in avoiding or minimizing estate taxes by excluding the assets from your estate, assets held in a revocable trust are likely to be included in your estate. This is because you maintained complete control over the assets during your lifetime, making them subject to estate taxation upon your passing.
If you’re considering including a revocable living trust in your estate plan, understanding the potential advantages and disadvantages is crucial. At The Matus Law Group, our New Jersey estate planning attorneys can help ensure that your estate plan aligns with state laws, protects your assets, and minimizes tax burdens. Our team can provide personalized guidance tailored to your unique needs. Contact us today for a consultation on how to create a comprehensive and effective estate plan.
Deciding whether a living trust is the right option for you will take the skill and attentions of an estate planning attorney. Contact the Matus Law Group at 732-281-0060.
Christine Matus
PrevPrevious4 Diverse Life Challenges Inherent in Raising a Special Needs Child
NextWhat Can Go Wrong in Attorney ReviewNext
