Living Trusts: Advantages & Disadvantages
What are the advantages of doing a living trust?
People have different reasons for doing a living trust. Here are some of the most common.
A desire to avoid the cost and time of probate. Probate in Virginia typically costs between 3 and 5% of the estate under administration and will take between 18 and 24 months to complete. [should make this state-neutral for clients in MD and DC]
A desire to preserve privacy. Probate is a completely public process, any one who wishes to can know what the value of your estate was when you died and who exactly received it.
Ownership of real estate in more than one state. Each state in which you own real estate will require a separate probate. If a trust owns real estate there will be no probate.
A desire to plan for incompetency. A Will only comes into action upon your death. Therefore, if you become incapacitated there may need to be a petition to the court for a guardian to be appointed for you. This can be expensive and humiliating. A living trust allows you to appoint someone now to take care of you and your affairs when you are not able to do so and under what circumstances they may do this.
Second marriages. Many people in second marriages are at great risk of disinheriting children from a prior relationship. If you and your new spouse own real estate, bank accounts and/or brokerage accounts jointly your children will receive nothing—EVEN IF you have a Will.
A beneficiary with “problems.” (he couldn’t hold onto a dollar bill if it was stapled to him OR she is on SSI or other needs-based government assistance OR your children are minors OR substance abuse is or has been a problem). This type of beneficiary needs careful planning to avoid harm to the beneficiary by the receipt of your wealth.
A desire to avoid estate taxes. For a married couple whose net worth—including life insurance—exceeds the estate-tax credit the additional cost of including provisions for a credit shelter trust within the living trust can save their beneficiaries 35% of every dollar that exceeds the credit amount.
Are there any disadvantages to doing a living trust?
While living trusts don’t have many disadvantages, the downsides can be significant. The primary disadvantages are:
The cost of establishing the trust. A trust will cost significantly more than a simple Will, though commonly these costs will be less than the ultimate cost of probate.
The process of funding the trust can be tiresome and time-consuming. This is most commonly a problem if you have many bank accounts that you do not wish to consolidate and/or have actual paper certificates for any stock you own. Most other assets are easily retitled to the trust, with a little guidance from your attorney.