Revocable Living Trusts
There are a few drawbacks that might apply to utilizing a revocable trust instead of a will. These occur from the different treatment of trusts and wills under particular home laws.
Reregistration of Property
As noted, in order to be included in a revocable trust, home needs to be reregistered in the name of the trust. This might be troublesome and might involve other expenses such as filing costs.
May Not Automatically Adapt to Changed Circumstances
In many jurisdictions, wills change instantly upon divorce, marriage or the birth of a child. Many jurisdictions do not provide comparable flexibility for revocable trusts. When situations alter, the grantor should be sure to make the needed modifications to the arrangements of a revocable trust.
Some Myths about Revocable Trusts
Misconception: Revocable Trusts Save Taxes. No, revocable trusts do not conserve income taxes, nor do they save estate taxes. In fact, throughout a grantor’s lifetime, the IRS may really discriminate against revocable reliance on particular specific earnings tax circumstances. Most of the time, however, the property in a revocable trust is treated as if it were the grantor’s own residential or commercial property for both income tax and estate tax purposes.
- Myth: Heirs Can not Challenge a Revocable Trust. Revocable trusts, like wills, can be attacked by disappointed beneficiaries. In fact, in those jurisdictions where it is much easier to develop a will than a revocable trust, a trust arrangement may be more susceptible to objections than a will.
- Misconception: Revocable Trusts Protect Assets from Creditors. This is incorrect. Lenders may reach the possessions throughout the grantor’s life time.
- Myth: Property Is Distributed More Quickly from a Revocable Trust. Upon death, recipients do not get property more rapidly from a revocable trust than from a will. And, in some jurisdictions, the guideline needing a notification period for financial institutions applies to revocable trusts as well as estates.
- Misconception: Revocable Trusts Lower Administrative Costs. Usually revocable trusts do not lower commissions or legal charges. Both an estate’s individual agent and the trustee of a revocable trust are entitled to receive commissions. Because the trust is often administered for numerous years prior to being dispersed, it is most likely that the trustee’s annual commissions, even when computed at a lower rate, will really, in aggregate, be greater than the personal agent.
Most legal fees are incurred in connection with post-mortem estate and earnings tax preparation and the circulation of assets– charges that apply to both revocable trusts and estates. If a lawyer calculates a cost on a percentage basis, as is frequently the case, that portion is usually based upon the estate tax value of a decedent’s residential or commercial property, not on the worth of the probate estate. In addition, revocable trusts normally do not sustain court filing costs.