Revocable Living Trusts: The Good, The Bad, and The Ugly Truths for Estate Planning

So you’ve been thinking about setting up a trust to handle your estate planning. Specifically, your advisor mentioned something called a revocable living trust. But what in the world is it and is it really the best option for you?

I’ve helped countless clients set up estate plans over my many years as a financial advisor. In deciding the right approach, one of the biggest considerations is whether to use a revocable living trust or simply leave things to a will. There are good reasons to go either way. To help you make up your mind, let’s take an in-depth look at the key pros and cons of using a revocable living trust as part of your estate planning process.

First, What Is a Revocable Living Trust?

Before we dive into the nitty-gritty details, let’s level-set on what a revocable living trust actually is. Simply put, it’s a legal entity you create during your life to own assets, like your home or bank accounts, that allows those assets to transfer directly to your beneficiaries when you pass away.

The key distinction here is that unlike other irrevocable trusts, you maintain full control rather than relinquishing it to a trustee. You can buy, sell, deposit, or withdraw assets as you please. You can also make changes to the trust terms whenever you want – thus the “revocable” part.

In essence, think of the trust as an empty box. You can put assets in it while you’re alive. Then the items can smoothly pass to loved ones when the time comes through a predesigned distribution plan without going through probate.

Revocable Living Trusts: Pros and Cons for Estate Planning

✅Pro #1: Avoiding Probate

Alright, on to the positives. Arguably the biggest benefit of using a living trust as part of your estate plan is avoiding the probate process. For those blissfully unaware, probate is the court-supervised process for distributing some left behind after death based on a will alone.

I won’t sugarcoat it – probate can often turn into a bureaucratic mess. Having helped grieving clients sift through it firsthand, I’ve seen it drain money, time, and sanity. The court proceedings generally take at least several months all while assets sit in limbo, bills pile up, greedy extended family members materialize – you get the idea.

So a properly funded revocable trust lets your assets skip this headache. They won’t get tied up since there’s no will to enter probate. The transition is generally smoother, quicker, and less stressful for loved ones.

✅Pro #2: Flexibility and Control

Another benefit during your lifetime is flexibility. As we discussed, you retain total ownership over assets in your living trust. You can buy, sell, and manage them as you see fit.

Compare this to an irrevocable trust where you give up control permanently. Yes, there are certain tax benefits if going that route. But you have to consider if you’re comfortable essentially signing over your assets with no takebacks.

Moreover, you can freely modify a revocable trust if your life circumstances or intentions change over time. Have a new grandchild you want to provide for? Did one of your children unexpectedly pass away? With a living trust, you keep control to alter inheritance plans.

✅Pro #3: Privacy

Finally, using a living trust helps maintain privacy over your assets and their distribution. Unlike wills which enter into public record during probate, trusts remain private documents throughout the entire process.

If you value keeping your financial life under wraps or want to avoid family infighting over an inheritance, this discretion is a big advantage.

❌Con #1: Upfront Costs

Of course, living trusts aren’t all sunshine and rainbows. There are some downsides to consider as well. First, they don’t come free or even cheap.

The legal setup process runs a few thousand dollars on average. There are attorney fees to draft documents, file paperwork, and transfer property titles. You can try DIY-ing it but I advise consulting a professional to configure things properly.

❌Con #2: Ongoing Management

Additionally, revocable trusts require more management compared to simply having a will. You must actively re-title assets under the trust’s name rather than your own. That’s an important step many people miss, rendering potential benefits useless.

There’s also more admin around handling taxes, record keeping, and staying on top of things annually. If you’re disciplined and detail-oriented, it likely won’t be too burdensome. But just know that living trusts do require ongoing care and feeding.

❌Con #3: Access Challenges After Death

Lastly, a downside I’ve seen play out involves loved ones accessing living trust assets after the death of individuals who handled all finances themselves.

Unlike bank accounts tied to a social security number with a surviving joint owner, trusts have their own tax IDs. So inheritors aren’t inherently set up to access them right away during an already stressful time.

Having a co-trustee and clear instructions helps mitigate issues. But know it can present an extra layer of access challenges shortly after someone passes that wills don’t necessarily bring.

Making the Right Estate Planning Decision for You

At the end of the day, weighing the most important revocable living trust pros and cons comes down to your situation and priorities. As with many major financial decisions, there are always tradeoffs to evaluate.

If probate avoidance and privacy sound like huge wins for your personal needs, the benefits likely justify committing to a living trust’s care and keeping. However, a will alone may check all your boxes if you’re comfortable with potential publicity and delays.

As your advisor, I’m here to walk through all aspects of your estate planning approach in depth. Whether we land on a living trust, basic will, or combo solution, the goal is setting your legacy vision in motion. When you’re ready to dig deeper into the options, my door is open – no probate pun intended!

More Estate Planning Help

Planning for the future is important at any age. But, for seniors, retirees, and family caregivers, a well-thought estate plan is essential. Why? An estate plan ensures your wishes are carried out after you pass away. Without one, your assets may not go to the people or causes you want them to. If you’ve been putting it off, now is the perfect time to get familiar with estate planning basics! Download the FREE e-book to learn about all the key parts of an estate plan, where to find more help, and a checklist to help you get better prepared for the process.