Disadvantages of Revocable Living Trusts - San Diego Estate Planning Attorneys

· All that you’ve told me about living trust—centered estate planning sounds really attractive. Are there any disadvantages of a revocable living trust?
There can be, but they are few in number, and most of these problems depend upon the state(s) in which you own real property. Even when there are disadvantages, the benefits of a revocable living trust usually far outweigh the drawbacks.
EXPENSE One objection to a revocable living trust is that it is more expensive than a will. True enough in some cases. However, a living trust—centered plan is usually only initially more expensive than a will. Wills have been priced below cost for years by attorneys who build up huge files of wills and then reap the probate fees in years to come. Although executors do not have to use the attorneys who drafted the wills as their attorneys, most do.
The cost of a will and after-death administration through the probate process almost always exceeds, by a large amount, the cost of a funded living trust and its private after-death administration.
Reducing the cost of death administration is only one benefit of avoiding probate, and avoiding probate is only one (small) benefit of a revocable living trust.
FUNDING Some people find it annoying to have to determine what they own and how they own it and then have to change the ownership of their property to a living trust. Yes, this can be annoying, but it has to be done only once. And if people think it is a problem for them while they are alive and well, think of what a problem it will be for their spouses or children if they become disabled or die.
The choice is this: People can either “probate” their own estates themselves or pay the courts and lawyers to do it for them after they are no longer around to answer questions such as, “Where is the deed to the house?”
Most people who have gone through the funding process, one piece of property at a time, report that they feel a great sense of relief and peace of mind, knowing that they finally have their records in order—which is actually one more advantage of living trusts.
TENANCY-BY-THE-ENTIRETY PROPERTY If a husband and wife own property as tenants by the entirety and transfer the property into their revocable living trusts, the property is no longer tenancy-by-the-entirety property. However, for most people, the benefits of tenancy by the entirety are not that substantial.
Tenancy by the entirety is available only in some states and only between spouses. Generally, the creditor of one spouse cannot get at the house to satisfy the debt; the creditor can get only a lien on the house. But this relief is not permanent. When the property is sold, the proceeds of the property may no longer be protected. Also, if a couple’s home has a large mortgage, the mortgage is probably the one debt they are really concerned about, but tenancy by the entirety will not protect their home from its own mortgage when both spouses are liable on the mortgage. If the home is close to being paid for, it is likely the couple do not have pressing bankruptcy concerns. Nonetheless, for some couples, under certain circumstances, tenancy-by-the-entirety protection might have enough psychological benefits to warrant keeping the property outside their living trusts until the first spouse passes away or until circumstances change.
There are at least two court cases, one in Hawaii and one in Missouri, which held that tenancy-by-the-entirety property, when transferred into a revocable living trust, retains its status as tenancy by the entirety for purposes of creditor protection. Make sure that you discuss with your estate planning attorney the status of the law in your state regarding this issue.
HOMESTEAD In some states, homeowners may not be entitled to protections afforded by a declaration of homestead if they place their homes in revocable living trusts. Even in these states, however, there are often ways to title a home so that the benefits of placing the home in a living trust and the declaration of homestead can both be obtained. To what extent a declaration of homestead can protect a home, under what circumstances, and for how long are a matter of state law. Generally, like tenancy by the entirety, it is not permanent protection. And, like tenancy by the entirety, it does not protect the home from claims by the mortgage holder.
MISCELLANEOUS ISSUES Retirement plans and certain professional practices or franchises may require some special handling for living trusts. In some states, real estate transfer taxes may be triggered upon transfer of real property to a trust (this is very rare); the title insurance company may have some particular requirements; or real estate tax breaks available for owner-occupied residences or the elderly or disabled may not be available when real estate is placed in a trust.
If debt-encumbered property is to be held in a living trust, written assurance should be obtained from the lender that the transfer will not trigger a “due-on-sale clause” (by federal statute this cannot happen in regard to a personal-residence mortgage).
This may seem like a long list, but these issues, when they do occur, are minor and rarely outweigh the substantial benefits of a funded revocable living trust. And more and more state legislatures are sweeping away the few remaining and outmoded quirks of state law regarding living trusts.
Your estate planning attorney should guide you through any issues regarding funding your revocable living trust in your state with your particular assets.

· What are the comparative costs of a will and a living trust?
The actual costs of wills and trusts vary from community to community. A living trust typically costs more than a will of comparable complexity, but this general rule may be different in any given community. Any cost comparison between the two must factor in the quality of the service given by the attorney, the scope of the services provided, including advice on how title to assets should be held, and the thoroughness of the planning. In addition, you should take into account the probate and administration expenses saved by using a living trust. On a national level, the cost of passing property to a spouse or from one generation to the next through the probate process can range from 3 to 10 percent of the gross estate. This figure includes court filing fees; executor commissions; and legal, accounting, and appraisal fees. On the other hand, the same estate plan implemented at death through a living trust typically costs from less than 1 percent up to 11/2 percent of the gross estate.
As you can see, a fair cost comparison must include not just the cost of the initial documents but the total cost of passing your property to the next generation.