Pros and Cons of Revocable Living Trust

A revocable living trust can help you protect your privacy, avoid probate and ensure protection in case of incapacitation. But this estate planning option also has some limitations. Revocable living trusts can be expensive, and they don’t have direct tax benefits. To decide if a revocable living trust is good for your situation, it’s important to weigh the pros and cons before setting one up.

A financial advisor can help you with living trusts and other estate planning issues, ensuring they line up with your overall financial plan.

What Is a Revocable Living Trust?

A revocable living trust is a document that outlines how your assets, such as bank accounts, investments or property, should be handled after your death. Because this is a living trust, you create the document while you are still alive. Then, after you die, your assets are transferred to your beneficiaries according to the terms outlined in the document.

The key difference between revocable and irrevocable trusts is that you can change or cancel revocable trusts at any time. An irrevocable trust is much more difficult to change.

While the person who makes the is usually the trustee while they are alive, you can name a successor trustee who will take over when the time comes. This person will assume management of the assets in the trust after your death.

Pros of a Revocable Living Trust

A mother and daughter holding hands after creating a trust.

Avoids Probate

Probate can be an expensive and time-consuming process. Fortunately, placing your assets in a revocable living trust means they won’t be subject to probate. This is because the trust remains intact after your death. This allows you, the trust-maker, to choose who should receive your assets. You can specify these and any other details of how you’d like your assets distributed when you form the trust.

Protects Your Privacy

Another benefit of avoiding probate is privacy protection. If your assets must go through probate, all the documents filed in court are made public record. That includes your last will and testament and the assets it contains. But when you place your assets in a revocable living trust, they aren’t subject to probate, which means they won’t be made public record.

Offers Protection in Case of Incapacitation

People can become chronically ill or disabled, making it difficult for them to act on their own behalf. When this happens, it can result in a guardianship or conservatorship that takes control of your assets. A revocable living trust allows you to instead select a successor trustee who assumes control of your assets should you become incapacitated. It also allows you to outline how assets should be administered.

Separates Assets

In some cases, a revocable living trust may be useful for the purpose of separating assets. For example, you might have a property with significant value from before the time when you were married. If you live in a community property state, a revocable living trust can help you separate these assets from communal assets.

Cons of a Revocable Living Trust

Can Be Expensive

Creating a revocable living trust can take more time and be more costly than writing a will because it requires a lot of work upfront. For instance, you must re-title all assets you want to transfer to the trust. It’s also necessary to contact your bank and any relevant entities that hold your assets to update your accounts.

These steps, along with others, can contribute to a long and expensive process. As such, a revocable living trust may not be a good idea unless your estate is complex.

Provides No Tax Benefits

While revocable living trusts do provide some asset protection, they don’t have direct tax benefits. Since you retain control of the assets while you are alive, any income from those assets passes through you. As a result, this income is reported and taxed. This differs from an irrevocable trust, where you completely give up control over your assets and thus can enjoy certain tax benefits.

Doesn’t Protect Against Creditors

Dealing with creditors is another area where revocable living trusts provide less protection than irrevocable trusts. Again, because you still have some control over your assets with a revocable living trust, they won’t be completely protected against creditors.

How Does a Revocable Trust Compare With a Will?

Both a revocable living trust and a will give you control over how your assets are handled after you die, but they operate differently. A trust takes effect while you are alive and can be changed or revoked. A will, on the other hand, only takes effect after your death and cannot be changed once you pass away. Many people use trusts and wills together as part of a complete estate plan.

Here are some other major areas of difference to note when considering the two:

Probate. Assets in a revocable living trust usually avoid probate, which means faster distribution to heirs and fewer court costs. Assets passed through a will, however, must go through probate unless they have a beneficiary designation or joint ownership. This can delay distribution and involve probate costs.
Privacy and incapacity planning. A trust keeps your estate private and allows a successor trustee to manage your finances if you become incapacitated. A will, however, becomes public record during probate and does not provide protection if you cannot manage your own affairs, often requiring a court-appointed guardian.
Costs and taxes. A trust takes more work and money to set up because you must re-title assets and maintain the trust., Awill is simpler and cheaper to create. However, probate costs may offset that savings. Neither option provides direct tax benefits—tax advantages usually come from other tools like irrevocable trusts or gifting strategies.

Feature	Revocable Living Trust	Will
When It Takes Effect	While you are alive; can be changed or revoked	After death; cannot be changed once you pass
Probate	Avoids probate in most cases	Must go through probate (unless assets have beneficiary designations or joint ownership)
Privacy	Private; terms are not filed in court	Public record once filed in probate court
Incapacity Planning	Successor trustee can manage assets if you become incapacitated	No incapacity protection; may require a court-appointed guardian
Cost & Maintenance	Higher setup cost; requires re-titling assets and ongoing updates	Cheaper and simpler to create; probate may add later costs
Tax Benefits	No direct tax savings	No direct tax savings

Who Should Consider a Revocable Living Trust?

A revocable living trust can be helpful for people who want to avoid probate and keep their estate private. It can be useful if you own property in multiple states or have a complex estate with specific distribution plans.

You might also find this estate planning tool helpful if you worry about becoming unable to manage your finances in the future. In this scenario, a successor trustee can take over without the need for court involvement.

That said, if your estate is simple and you are okay with probate, a will might be enough. Consider your needs and whether a trust’s benefits are worth the cost before setting one up.

Common Mistakes to Avoid When Setting Up a Trust

One common mistake is not funding the trust. After creating a revocable living trust, you must transfer assets into it by re-titling property, updating financial accounts and changing beneficiary designations. If assets are not properly transferred, they may still go through probate.

Another mistake many people make is not updating the trust. Life changes like marriage, divorce, births or deaths can affect your estate plan. Failing to update your trust could lead to unintended distributions or exclude important beneficiaries.

Some people also assume that a trust protects assets from creditors or taxes, but a revocable living trust does not offer these protections. Because you still control the assets, they remain part of your taxable estate and can be claimed by creditors. Understanding these limitations is key to making the trust work as intended.

Bottom Line

An investor satisfied with the performance of assets held in a trust.

A revocable living trust is a document that allows you to outline who will receive your assets after you die and how those assets should be distributed. Revocable living trusts have a few key benefits, like avoiding probate, maintaining privacy and having protection in case of incapacitation. However, revocable living trusts can be expensive, and they don’t have direct tax benefits, nor do they protect against creditors. Carefully weigh these pros and cons against your situation before deciding to set up a revocable living trust.

Tips for Establishing a Revocable Living Trust

A financial advisor can help you create an estate plan for your family’s needs and goals. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Many estate planners have taken things into their own hands thanks to all the information they can find online. It’s commendable to handle things yourself, but you will need to put in the time and energy to make sure you avoid the common dangers of DIY estate planning.
For some people, creating a will is enough. If you think that is the case, it’s a good idea to look more into the strengths and limitations of wills. There are also multiple types of wills and the one you need will depend on your situation. To get you started, here are some things to know about making a will.