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Advantages and Disadvantages of Revocable Living Trusts

By Rodney H. Piercey, Tax Elimination Estate Planning Attorney
1000 Hart Road, Suite 300
Barrington, IL 60010


The principal advantages of Revocable Living Trusts ("RLTs") are:


1.             Probate Avoidance.  Assets owned in an RLT do not require probate.  Probate is a court case to protect creditors.  The probate process varies from state to state, but nationwide statistics reveal an average cost of 3% to 8% of the value of an estate and an average time of six to twenty-four months to complete a probate.  In addition, if you own assets in more than one state, you may face a probate in each of those states.


2.             Privacy, Control and Predictability.  A probate case is traditionally a public case with notice inviting creditors to file claims published in the newspaper.  Court records available for anyone to examine.  One probate attorney has said of the process, “You never know who will show up in court—unknown people claiming to be heirs and creditors, in-laws, and outlaws.”  An RLT is a private document controlled by the successor Trustee you choose during your lifetime.  With an RLT, no one sees the documents except in limited situations controlled by your Trustee, and then only in confidence.


3.             Immediate Availability of Assets.  By avoiding probate, beneficiaries can receive assets immediately after death or at any time you specify in the RLT.   Beneficiaries do not have to seek permission from a judge to use assets you intend for them to have.


4.             Controlling Distributions to Meet Needs.  An RLT allows withholding of assets to meet the needs of younger beneficiaries.  Trust assets can be used for needs such as food, clothing, health care, and education while protecting those assets from risks like lawsuits, divorces, and poor financial decisions.  Your successor Trustee manages the assets and distributes them to beneficiaries in the time and manner you desire.


5.             Protection from Unreasonable Claims.  Probate protects creditors first.  Even claims you would deem unreasonable may be made against your assets after your death.  A well drafted RLT may offer after-death protection against claims your Trustee deems unreasonable.  In addition, a two-trust plan for a husband and wife may protect one spouse's assets from the creditors of the other spouse during your lifetime.  Also, unlike the method of owning assets jointly with children used by many, an RLT offers the same probate avoidance while not losing any control over the assets and not exposing you to the risks of avoidable capital gains taxes and claims of your children’s creditors which would result from joint ownership with children.


6.             Planning for Incapacity.  If you or your spouse suffer a disabling illness or accident, an RLT may eliminate the need for a guardianship court case.  Instead of a court appointing a guardian, your spouse or other successor trustee takes over without the costs or delay of a guardianship court case.


The principal disadvantages of RLTs are:


1.             Greater Expense.  An RLT estate plan typically costs $200 to $600 more to create than a will-based plan.  This is because more paperwork is required to make the RLT function properly both during life and after death and because assets have to be moved into the RLT.  Your attorney should help you transfer your assets or show you how to do so.


2.             Longer Creditor Claims Period.  Without a probate, most states allow more time for creditors to file claims.  If any creditor concerns exist at death, a minimal probate proceeding may still be required even with an RLT estate plan to shorten that period.


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