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What are the Pros and Cons of having a Revocable Trust?

A: Every estate plan is unique.  While having a revocable trust has many advantages in certain situations, it often presents drawbacks inconsistent with a testator's needs.

PROs

1.  Incapacity Protection:  For those who become ill or incompetent, a successor trustee designated under a revocable trust agreement may instantly manage a testator's trust assets without judicial process.  This type of transfer cannot be handled as seamlessly by relying solely upon a power of attorney.

2.  Probate Avoidance:  Often, revocable trusts are promoted heavily as a means to circumvent the time and expense of probating a decedent's will in a local court.  The reality is that in most states probate is not burdensome or expensive.  Many localities offer a simplified probate process that you may be able to use.  Many types of assets are excluded from probate anyway, whether or not you have a revocable trust.  For example, jointly held property passes to the surviving owner automatically including insurance proceeds and retirement accounts (including IRAs).  However, when a testator owns property in another state, survivors will have to go through a separate probate for the out-of-state asset(s).  Additional probates require the expense of hiring an attorney licensed to practice in the out-of-state jurisdiction.  Holding out-of-state property in a revocable trust avoids this ancillary probate, as well as local probate.

3.  Privacy and Avoidance of Will Contests:  In all states, the contents of a decedent's will is public record.  Often, individuals challenge the dispositive provisions of a will if they fail to receive expected distributions.  Such individuals may attack will distributions on the ground that the testator lacked testamentary capacity, made a mistake or omission or was subject to undue coercion.  In contrast to wills, trusts are not a matter of public record and are generally not subject to challenge.  Accordingly, in circumstances where a testator intends to disinherit an heir or for any reasons desires a greater degree of privacy over property distributions, a revocable trust is often a favored planning tool.

CONS

1.  No Tax Benefits:  Revocable trusts are neutral from a tax point of view.  For income tax purposes trust income is taxed to the grantor's.  For estate tax purposes assets transferred to a revocable trust are included in the grantor's taxable estate.

2.  There is No Asset Protection:  Because a grantor in a revocable trust maintains full control and management, assets held in a revocable trust are just as vulnerable to creditors as assets held personally.  Family limited partnership or limited liability company should be used for asset protection.

3.  Administrative Burden:  The benefits of a trust only extend to assets that are transferred to and titled in the trust's name.  Establishing financial accounts and re-titling previously personally held assets can result in significant expenditure of time and resources.

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