Transferring assets to a revocable trust will not save income or estate taxes. While assets held in an irrevocable trust are often beyond the reach of creditors, this is not the case with a revocable trust. The high costs and expenses associated with maintaining a revocable active trust are often considered a disadvantage. Furthermore, revocable living trusts cannot protect your assets from creditors.
Since the trust assets are still yours, they are still taxable and you must declare the trust income on your tax returns. A revocable active trust is a type of trust that can be canceled at any time, and the grantor of the trust is both the trustee and the beneficiary (allowing control of the trust's assets). A revocable living trust can also provide your loved ones with almost immediate access to cash during a difficult time. With a revocable living trust, the assets can be distributed to the grantor and, in the event of death, a “successor trustee” distributes the assets in accordance with the trust's legal dictates.
It is important to remember that the law governing revocable trusts and other types of trusts may vary depending on the state in question. The benefits of an irrevocable trust generally outweigh the disadvantages, but these trusts aren't necessary for everyone. In the event of death, assets held in the revocable trust evade succession, meaning that they can be passed to the heirs without having to go to court, which can be time-consuming and expensive. Creating and funding a revocable living trust usually costs more time and money than simply drafting a will up to three times as much, at least initially. Revocable living trusts have advantages and disadvantages, from avoiding the legalization of a will to the costs associated with creating one. However, certain types of assets can still prevent probate legalization, such as retirement plans, insurance policies, annuities, and joint assets, meaning that a revocable trust may not always be needed. Revocable life trusts can also help you maintain privacy since no public record is required, and you may be able to help your family avoid the lengthy probate process after your death.
After creating a revocable trust, the assets must be re-titled in the name of the trust since assets that are not formally deposited in the trust still have to go through a probate process and will not be under the management of a successor trustee in case of incapacity. Setting up a revocable living trust involves naming a successor trustee; someone to step in and manage the trust on your behalf in case you can no longer handle your personal affairs on your own. This is the main drawback of using a revocable living trust for many people, but it's not worth investing time, money, and effort into creating one if the trust isn't fully funded. As an expert in estate planning and asset protection strategies, I believe that it is important for individuals to understand both sides of this issue before making any decisions about their estate planning needs. While there are some advantages to setting up a revocable living trust, there are also some drawbacks that should be taken into consideration before making any decisions. Ultimately, it is important for individuals to weigh all their options before deciding whether or not setting up a revocable living trust is right for them.