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Advantages and disadvantages of a revocable trust

On Behalf of | Jan 18, 2022 | Estate Planning

A revocable trust is one which you can make changes to or cancel as long as you are still alive. According to FedWeek, “living trust” is another term for this kind of estate planning document.

A living trust has many features that make it attractive to you. However, it also has drawbacks that might not make it right for your situation.

Advantages of a revocable trust

When you create a revocable trust, you name a successor trustee that takes control of the assets if you become incapacitated. That way, you know that someone is managing the trust if you are unable to do so. If you re-evaluate later and decide that you want to make revisions, a revocable trust allows you to do that. You retain complete control over the assets as long as you are still alive. Once you die, your successor trustee distributes the assets to your beneficiaries according to your instructions, avoiding probate in the process.

Disadvantages of a revocable trust

There are adverse consequences of trying to transfer certain assets into a trust, such as retirement accounts. Tax acceleration is an example of the possible consequences. For the trust to be able to hold the assets, you have to have each of them retitled, a process that takes time and effort.

Because you retain control and ownership of the assets, there are no tax advantages to creating a revocable trust. The trust and the assets it holds are still part of your estate, meaning that if your beneficiaries would owe estate taxes without a revocable trust, they would still owe the same amount with it.

If tax avoidance is your estate planning goal, you need a different type of trust than a revocable one.