You’ve probably seen the advertisements touting the creation of a revocable living trust as a good way to avoid probate. And for some people it is. However, it may not be appropriate for everyone or for every situation.

Probate is a court-supervised proceeding that can be time consuming and expensive. That’s why the big advantage of a living trust is that its assets don’t go through probate. On your death, your trustee simply passes the assets to your beneficiaries as specified in the trust. No will is involved. A living trust can also be a practical strategy if you own a vacation home or other out-of-state property. Adding the property to a living trust lets you avoid the second probate that’s ordinarily needed to transfer such property.

Disability Protection

Living trusts are also very good mechanisms for managing your finances if you should ever become disabled. You can set up a living trust, transfer your assets to it but keep full control by naming yourself as trustee, and also name a reliable co-trustee, such as your adult child. Your co-trustee will be able to manage the trust assets for you if that ever becomes necessary. On the other hand, creating a durable power of attorney can also be an effective way to provide for management of your assets if you become disabled.

Against the positives — probate avoidance and disability protection — you should weigh what a living trust won’t accomplish and its potential disadvantages.

You’ll Still Have To Pay Taxes

Revocable living trusts don’t save taxes. You’ll still have to pay income taxes on income earned by the trust assets. The trust property will be included in your gross estate, too — and will be just as vulnerable to estate taxes as your non-trust assets will be.

Creditors May Still Pursue You or Your Estate

Another misconception about a revocable living trust is that it can protect your assets from creditors. In fact, you can be sued and lose your property whether you own it inside or outside of a revocable trust.

Cost Benefit Analysis

In many states, probate is not a very expensive or difficult process. And, while living trusts help avoid probate costs, they have costs of their own, including legal fees and administrative costs (and paperwork, too). Unless your estate will be very large, the potential probate cost savings may not exceed the costs of creating and administering the trust.

Titling and Beneficiary Designations

Some of your assets, including property that’s owned jointly with right of survivorship and retirement plan savings and life insurance payable to a named beneficiary, are already probate-proof. Such assets will pass automatically to their new owners on your death.

Need for a Will

Even with a living trust, you still need to have a will because it’s likely that some of your assets won’t be included in your trust. A will is also necessary if you want to name a guardian for your minor children.

You Make the Call

Creating a revocable living trust may be a good decision or it may not. Only your specific financial and family circumstances can determine the answer.