Pros & Cons of Living Trust and Estate Planning

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People often assume that only advantages -- and no downsides -- come with placing their homes in a living trust. Some advantages include avoiding probate court, saving on estate taxes and possibly shielding your home from creditor attack. Disadvantages include the cost to have an attorney create the trust and the necessary paperwork, along with possibly gaining little advantage over preparing a less costly, but legal will

Living Trusts

Created while the homeowner is still alive, these are set up as revocable trusts, permitting the grantors, also often the trustees and beneficiaries, to change the terms of the trust or dissolve it entirely. The trust takes title to the home and transfers control of the property to the trustee. When the grantor dies, the trust becomes an irrevocable trust, prohibiting future changes to the terms.

Avoiding Probate

Most living trusts are structured to avoid probate and its costs. While some states have streamlined their probate process, many still require cost, time and attendance at multiple hearings. Most homeowners wishing to avoid probate and transfer title to their home to their heirs quickly find avoiding probate through a trust to be a strong advantage. Should you choose to transfer other properties, some of which are out of state, you will avoid probate in other jurisdictions, also.

Future Incapacity Protection

Should you become ill and unable to properly manage your own finances, another trustee can be selected to manage your trust to protect your home. Living revocable trusts give you this benefit. If you have a co-trustee that is your spouse, this can further simplify and protect your home. Your spouse can remain as trustee, managing your home and any other assets you've transferred to the trust.

Estate Taxes

While placing your home in trust generates no extra favorable tax treatment, you may save some estate taxes if your trust is designed properly. Much depends on how efficiently your financial plans for your estate have been constructed. Since living trusts are revocable, allowing changes or, even, dissolution, at any time, the trust and the grantor enjoy no beneficial tax treatment. Creating a trust without a good estate plan often saves little or no tax consequences.