Pros and Cons of a Living Trust

In this post, I discuss the pros and cons of a living trust, particularly the benefits and drawbacks it offers as part of your estate plan.

*Photo by peddhapati is licensed under CC 2.0. *

In a previous post, I discussed living trusts, how they contrast with wills, and some of their main points of attraction. In this post, I will discuss the pros and cons of a living trust to help you better determine if a living trust is right for you and your estate plan.

Pros of  Living Trust

When weighing the pros and cons of a living trust, the issue of probate always arises. A living trust allows your estate to avoid probate, thereby sparing your heirs the hassles and inconveniences that can accompany the process. This is particularly valuable if you own assets in other states, as it spares your heirs the difficulty associated with enduring the probate process in multiple states.

In addition, a living trust allows you to choose which state law you would like to apply. So, if for whatever reason, you want Texas law to apply to your trust, a living trust can help make that happen, even if you live in Arkansas.

A list of the pros and cons of a living trust must also take into account expense. While generally more expensive than wills to set up in the beginning, Arkansas statutory executor and probate fees may outweigh the additional set up fees, making living trusts less expensive in the long run.

Through probate, the estate administrator and any attorney assisting the administrator are entitled to compensation for their services that can cost thousands of dollars, depending upon the size of the estate. Living trusts therefore offer an advantage in this regard as well.

Cons

A list of the pros and cons of a living trust must inevitably include cons. The main con involves creditors. One significant advantage of probate is that it preempts creditors from pursuing your estate after six months. If your property does not go through probate but rather passes by a living trust, your creditors generally have five years after your death to pursue your debts.

So, if you have many debts or are otherwise concerned that you may have creditors pursuing your estate after your death—particularly creditors that may not be readily identifiable—a living trust may not be the best choice for you. Through careful planning, however, this risk can be significantly mitigated. In addition, your executor may probate your estate, even if there is no property to probate, in order to take advantage of this benefit.

If the estate tax is a concern, living trusts must be utilized carefully and with the assistance of a competent attorney. If done correctly, a living trust can provide estate tax benefits, but if not done correctly, it may create greater difficulties. Federal law allows estates to take value of the estate at death or six months thereafter, but this election cannot generally be made if the estate has already been distributed.

So, if the assets of the trust are divided into other trusts for the beneficiaries, as is often the case with living trusts, this election would be unavailable. Even so, as stated above, this disadvantage can generally be avoided, and indeed turned into an advantage, with careful planning when forming the living trust, and a competent attorney will ensure plans for this contingency are sufficiency enacted.

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See Also:

The Living Trust

Ways to Avoid Probate