What Are the Disadvantages of a Living Trust?


Quick Answer

Among the disadvantages of a living trust are its expense and the complicated nature of its administration. Additionally, a living trust does not offer much asset protection from creditors, income taxes or estate taxes.

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Full Answer

Setting up a living trust can cost $1,000 to $2,000 or more in lawyer's fees, depending upon its complexity, as of 2015. Once the trust is set up, additional fees for its maintenance may apply, such as trustee fees and investment advisory fees. Although trust grantors set up living trusts to avoid probate, there are less expensive and simpler ways to bypass probate procedures, such as distributing pre-death gifts, holding a primary dwelling in joint tenancy, designating beneficiaries for retirement accounts and life insurance, and specifying a bank account pay-on-death beneficiary. On the other hand, living trusts require ongoing bookkeeping to re-title and register assets to the trust.

Because grantors of living trusts often register themselves as trustees, there is little asset protection. Assets in living trusts are vulnerable to creditors when judgments against trust holders surpass insurance coverage. Income obtained from assets in living trusts is subject to income tax. Living trusts are also added as a part of total assets when determining estate taxes. Usually, even if a grantor establishes a living trust for most assets, a pour-over will is also necessary to handle any assets not transferred to the living trust.

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