Pros and Cons of Revocable Living Trusts in Estate Planning

A revocable living trust can be an effective method of distributing property to your intended beneficiaries without need of a probate proceeding. A trust is traditionally an agreement between two parties — the grantor and the trustee — directing how property is to managed and for whose benefit. But a living trust allows you be your own trustee during your lifetime and to appoint a successor to take over upon your incapacity or death. This makes it an effective estate planning tool, but there are some cautions to be observed.

The chief benefit of a revocable living trust is that it gives you complete and flexible control of the property while you are alive. This includes the power to:

  • Add or remove property from the trust
  • Invest the trust assets as you think most advantageous
  • Make distributions from the trust to named beneficiaries
  • Change the trust beneficiaries or the terms on which they can receive property
  • Revoke the trust if you see fit

The other major advantage of a trust is that upon your death, the assets are transferred automatically to your successor trustee, who can then manage and distribute them without the need of a probate proceeding. This allows your estate to be handled privately, less expensively and without the possibility of heirs or other parties raising objections.

However, there are some downsides to using a revocable living trust:

  • Setting up a trust is more expensive than writing a will, since all the property it covers must be set forth and detailed instructions must be given.
  • All property placed into the trust must be retitled in the name of the trust, which becomes the legal owner. This means any conveyance of property back to you or to others during your lifetime can be a taxable transaction.
  • There is no tax-shelter advantage. The revocability of the trust means the property and any dividends or interest are taxable to you.
  • If any distribution specified in the trust cannot be made, such as if a beneficiary has died without children, the distribution will fail unless an alternative beneficiary is designated.

A comprehensive estate plan can include both a will and a revocable living trust. The will can include a residuary clause providing that any property not transferred by the trust passes under the will.

For help in creating an estate plan that best suits your needs and objectives, contact the Law Office of Maurice J. Verrillo, P.C. in Rochester, New York. To schedule a free consultation, call us at 585-563-1134 or contact us online.


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