What Are Some Of The Disadvantages Of A Revocable Living Trust?

While the advantages of a revocable living trust receive most of the public attention, the disadvantages should also be considered. Since a revocable living trust is a more complex legal document, it is often more costly to establish. Also, deeds and other transfer documents must be prepared transferring the grantor`s assets to the trust, a process which can require a substantial investment of the grantor`s time. The use of a revocable living trust requires more ongoing monitoring to ensure that assets remain in the trust and that newly purchased assets are titled in the trust. For instance, a grantor who transfers funds to a second financial institution (perhaps to obtain a better interest rate) must remember to advise the new institution to title the new account in the trust. After the grantor`s death, some of the income tax rules applicable to a trust are not as liberal as those available to a probate estate. For example, a probate estate may elect to use a fiscal year as its tax year, while a trust is restricted to the calendar year. Trusts must pay estimated income tax payments while a probate estate is exempt from this requirement for the first two years. Trusts are also subject to other tax rules that do not apply to probate estates.

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