What is the downside of a revocable trust?

While revocable trusts have many good points, such as the avoidance of probate, preserved privacy, and easier transfer of assets, there are many countervailing concerns. One of the chief is that their assets are not protected. Since grantors reserve their right to remove assets from the corpus of the trust, those assets— while the grantor is living—can provide a target for the grantor's creditors, judgments, and even divorce actions. Unlike its irrevocable cousin, these revocable trusts cannot give the maker that comfort.

 

Another demerit is that it does not offer tax benefits. The revocable trusts lack best tax benefits because the trust's generated income is reported in the grantor's tax return report. Besides, the assets inside the trust are subjected to the potentiality of taxation in the grantor's taxable estate for estate taxation purposes. Therefore, one who wants to minimize estate taxation liabilities or attain other taxes benefits won't use a revocable trust to do that.

 

While a will can be cost-free with the right templates, the establishment and maintenance of a revocable trust are expensive and complex. Setting up a revocable trust typically requires some legal work, so it is often less cost-effective on a current up-front basis compared to a will. In addition, funding a trust with all necessary assets and making sure they are properly titled can be a complicated and ongoing process, with pitfalls awaiting unwary planners.

 

On the other hand, issues with regard to privacy take effect. Revocable trusts offer privacy by avoiding probate upon the death of the grantor, but there is no privacy or additional safeguard against the continuity of the trust assets during the life of the grantor. The trust assets are at risk of becoming public if there are legal proceedings or any financial investigations pertaining to the grantor.

 

It is also possible for a trust to be mismanaged if the grantor, who is often the original trustee, becomes incapacitated or neglects the proper administration of the trust. While another trustee can step in, this transition can sometimes lead to delays and legal disputes, complicating trust management and causing friction among beneficiaries. One Pacific Trust offers the best services to mitigate these risks, providing expert trust administration and proactive management to ensure smooth transitions and protect the interests of all parties involved.