Advantages and disadvantages of trusts

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With more than 65 million Americans now over the age of 50, more people than ever are considering how to transfer their assets and provide for their loved ones after their gone. Without proper planning, a large portion of one’s assets could be lost unnecessarily to probate court costs, legal fees, unintended heirs and estate taxes.

A revocable trust is one approach to dealing with these issues. A revocable trust is a legal document, which can be amended or revoked, containing your instructions for what you want to happen to your assets after your death. Below are some advantages and disadvantages of establishing a revocable trust.

Advantages of a trust

  • Avoid probate — Probate refers to the process of legally establishing the validity of a Will before a judicial authority. The assets in a trust are distributed in accordance with the terms of the trust. Your estate, therefore, avoids the cost and delay of probate.
  • Continuity of management during disability — Creating a revocable trust ensures that your property remains available to be used for your benefit, should you become physically or mentally incapable of managing your own affairs.
  • Remain in control—A revocable trust gives you full use of your assets while you are alive and then passes this authority onto a successor trustee after your death. The successor trustee then distributes the assets to the named beneficiaries.
  • Flexibility — Using a funded revocable trust may allow you to name unrelated, out-of-state individuals and out-of-state trust companies to act as the primary administrator of your property at death.
  • No interruption in investment management — Assuming the assets were previously transferred into the trust’s name, there is no need to reregister securities after death. Depending on the cash needs and investment objectives of the grantor’s estate, there may be no need to develop a new investment strategy.

Disadvantages of a trust

  • Reregistration of property — In order to be included in a revocable trust, property must be reregistered in the name of the trust. This may be burdensome and may involve other costs such as filing fees.  If any property has not been reregistered in the name of the trust at the time of death it’s likely the estate will have to go through the probate process even though a revocable trust was in place.
  • Creditors have access to cash — A revocable trust may not shield you from creditors. Your debts may be applied to the trust.
  • Costly to establish—A revocable trust costs substantially more to establish than a Will because you must fund the trust at the time you form it.
  • May not automatically adapt to changed circumstances — In many jurisdictions, Wills change automatically upon divorce, marriage or the birth of a child. Most jurisdictions do not provide similar flexibility for revocable trusts.

One of the most important factors to consider prior to setting up a revocable trust is selecting the right attorney. It is essential that your trust is set up properly or it will not function as intended. Make sure the attorney has experience specifically with revocable trusts, not simply estate planning, since that usually means wills and probate. Also, you will want someone with whom you feel comfortable discussing your personal and financial information.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

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