There are effectively two types of trusts in which a grantor, the person who is forming the trust, can place assets and funds. They are a revocable trust, and an irrevocable trust. In this post, we will discuss the pros and cons of the revocable trust, which can also sometimes be known as a “living trust.”
A revocable trust is one in which the grantor is still living. He or she may alter or cancel dependents or provisions to the trust up until the date of death. After the grantor becomes deceased, then the trust becomes irrevocable and no further changes or deletions can be made. Because the beneficiaries of a revocable trust are already named, it allows an estate to avoid probate upon the grantor’s death. By the same terms, if a beneficiary of the trust is not expected to make good financial decisions or use assets wisely, the trust can be set to allow only a certain money be distributed at a time, rather than one large lump sum. These distributions can be managed by the appointed Trustee, rather than having an additional guardian appointed by a court. These are some of the advantages.
The one main disadvantage to a revocable trust are its administration costs. A trust can cost a great deal more in preparation and administration fees than would simple will. It requires the involvement of a Trustee, continuing accounting requirements, and tax preparations. In addition, in order for probate to be avoided, all assets must be transferred into the name of the trust, rather than remain in the name of its grantor. These transfers will likely cost additional legal fees.
If you are considering setting up a revocable trust, it is recommended that you consult with an experienced estate planning attorney who can expertly explain the potential tax implications and requirements.