- One potential disadvantage of creating a living trust is the associated costs. Although attorney's fees vary, it is not unusual for trust establishment fees to be between $1,000 and $3,000, according to The New York Times. Once the trust is established, there may be costs associated with maintaining it. Different states have different trust regulations that will affect the ongoing costs of the trust. New York State, for example, uses a sliding scale to determine the fees due to trustees based on the value of assets in the trust. Some trustees, such as banks, charge additional fees for trustee services.
- In order for an asset to be protected by a living trust its ownership must be transferred to that trust. Unfortunately, it can be difficult to transfer some items into a trust. If real estate is transferred into a trust, for example, any outstanding mortgage on the property may become due immediately. It may also be difficult to borrow against or refinance any assets held by the trust. Once a trust has been established and assets transferred, it is important to remember to transfer ownership of assets acquired in the future to the trust. Forgetting to transfer future acquisitions to the trust will leave them without the trust's probate protection.
- The estate tax savings commonly touted in connection with living trusts is often overstated. Living trusts are revocable, meaning that's they can be canceled at any time. Because of this, most states grant them no special tax breaks. Money made by the trust throughout its life is taxable and, upon the grantor's death, assets dispersed to heirs and others are subject to estate taxes. When interviewed by The New York Times, Manhattan attorney Ralph Engel stated that living trusts "save no taxes at all compared to an estate plan in an appropriately drafted will."
- Many people mistakenly create a living trust thinking that it can protect them in ways it cannot. If at any time a judgment is filed against you, a living trust will not protect your assets from being used to satisfy the debt. Most people create a living trust in order to protect their assets form probate without understanding that certain assets are already probate-proof. Life insurance payments, IRAs and many retirement benefits are legally exempted from probate and do not need to be placed in a living trust for protection. It is important to consider a living trust only if you have assets that are not subject to this protection. Remember that a living trust does not negate the need for a will. A will can help make your wishes and intentions clear and may include assets and family heirlooms not included in a trust.
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