First, a word of caution:
Contrary to the Myths Perpetrated by the Hucksters, Hawkers, and Panhandlers. Note that most estates are small enough to avoid taxes at death. Additionally, the tax-mitigating features that are available for trusts are also available for wills. Furthermore, even if you get a living trust, you’ll probably still want to get a will. Likely you’ll want a simplified will called a “pour-over will,” which states that anything you left out of the trust during your life should be put in the trust upon death. Also, a revocable living trust, like the ones we’re contemplating in this blog post, will not protect your assets from creditors. In order to get protections like that, you’ll want to form the irrevocable trust we mentioned earlier. Lastly, it probably behooves you to avoid the hucksters and hire an estate planning attorney to help you draft and implement a trust, as the quality of your trust will help ensure that your estate is distributed according to your wishes when you’re no longer around to make changes to the instrument.
So here are the some advantages and disadvantages of a living trust:
Disadvantage 1: Up-Front Costs. This is probably the biggest hurdle as it almost always costs more to get a trust than it does to get a will. However, if you make sure to put all of your assets in the trust and continue to do so for the rest of your life, you can avoid or minimize probate and the associated costs. Frequently, the costs of probate and the costs of a trust are fairly comparable. So, just like pre-paid burial plots or cremations, the up-front cost of a trust can be justified, to some degree, if you’re looking to minimize costs for those you leave behind.
Disadvantage 2: Properly Implementing the Trust. Implementing the trust requires a lot more time than merely executing your will. This is because you should work with your attorney to figure out which assets to put in the trust and then work with the attorney to do so. You’re essentially doing much of the work that your beneficiaries would have to do after you’ve passed away.
Disadvantage 3: Continued Attention Required. Once you’ve implemented the trust and moved your assets into the trust, you should be conscientious for the rest of your life about putting newly acquired assets into the trust. Additionally, the IRS typically requires a separate income tax return for the trust.
Advantage 1: Assisting Folks in Their Old Age. Whether you are currently age 22 or age 70, unfortunately, someday you’re going to get old. And there’s a decent chance you may lose enough of your faculties that you need someone else to transact your business. When that day comes, a trust may be helpful, as banks frequently have more faith in a trust than in a power of attorney.
Advantage 2: Help Avoid Probate. While the savings associated with avoiding probate are often sold as the biggest advantage of a living trust, in Texas they’re not. Probate in Texas is fairly streamlined and, again, it will probably cost you about the same or less to probate a will as it will cost you to have a trust made. Another possible advantage of avoiding probate is to preserve privacy. However, this too is probably not as compelling as one might think. Although a trust allows you to avoid probate and avoid the filing of an inventory with the court, many of your records are likely already public record (e.g. property records, business records on the Secretary of State website, birth certificate, marriage license, etc.).
Advantage 3: Streamline Distribution Process. Here, there are several advantages. First, trusts often allow for faster distribution of assets. Second, if the newly deceased grantor owned property in other states, trusts allow for the distribution of that property through the trust law of the state in which the trust was formed. In other words, the property would be distributed through the trust laws of Texas and would not require any further probate in the state in which the property is owned.
Advantage 4: Better Protects Assets from Contest. The death of a loved one is tragic for those left behind and can lead the closest of siblings and family to fight. Trusts are generally better at protecting assets from contest. This is, at least in part, because there is often less of a question about the deceased’s intent to form the trust, as the deceased formed and used the trust during their lifetime. While protection from contest may always be an important consideration, it becomes even more so if any of the following applies to you: (a) you have a contentious family; (b) you want to disown a child; or (c) you want to leave more of your assets to one child than another or to someone else entirely.