Common Misconceptions About Revocable Living Trusts


Posted on February 23, 2024

Due to the many benefits of revocable living trusts, they are becoming increasingly common estate planning documents. But with their recent rise in popularity, several common misconceptions have emerged. Before you make any decisions, speaking with an experienced Atlanta living trust lawyer is important. Our skilled Atlanta estate planning attorney at Trace Brooks Law can do a comprehensive evaluation of your financial situation and walk you through why you should add a revocable living trust to your estate plan.

In this article, we answer several common questions about the benefits of revocable trusts.

Does a revocable living trust help me save on taxes?

No. Like other grantor trusts, revocable living trusts are ignored for income tax purposes during the grantor’s life. Taxable events that happen to trust-owned property during the grantor’s life must be reported on the grantor’s personal income tax return. Further, revocable living trusts and wills can accomplish the same tax benefits at death. 

Does a revocable living trust protect my assets from creditors?

Asset protection is on many clients’ minds. A revocable living trust, however, is generally not an effective asset protection strategy. Because the grantor creates the trust and has full access to assets in a revocable living trust, Georgia law does not allow asset protection benefits during the grantor’s life or after death.

In very limited and rare circumstances, a revocable living trust may provide tangential asset protection benefits. Because it can be slightly more difficult for a creditor to collect from a trust than an estate, the trustee may have additional leverage in negotiating a settlement. Also, a revocable living trust may protect from a creditor of the estate that the grantor did not owe during their lifetime (this situation is rare). The limited circumstances in which a revocable living trust might protect your assets from current or future creditors should not be the primary reason to use a revocable living trust as your primary estate planning document. There are many more effective ways to protect your assets from current and future creditors, both during your life and after your death.

Contact an Atlanta Asset Protection Attorney at Trace Brooks Law to discuss options that could effectively protect your assets from current and future creditors.

Is a revocable living trust better than a will?

It depends. Whether a revocable living trust is better than a will depends on your unique circumstances and estate planning goals. Many clients balance the relative simplicity and cost-effectiveness of a will-based estate plan with the additional privacy and ease of administration afforded by a revocable living trust-based plan. 

What are the Pitfalls of a Revocable Trust?

When considering estate planning, a revocable trust often comes up as a flexible option, but it’s not without its drawbacks. Understanding the pitfalls is crucial before deciding if a revocable trust is suitable for you.

Initial and Ongoing Costs: Setting up a revocable trust can be costly and time-consuming. Unlike a simple will, a trust requires transferring ownership of your assets into the trust, known as re-titling. This process involves changing the titles and deeds of your assets and updating bank accounts to reflect the trust’s ownership, which can be a meticulous and lengthy process. If you neglect to re-title any asset, that asset could still go through probate, negating one of the trust’s benefits.

No Tax Advantages: Unlike irrevocable trusts, revocable trusts offer no tax advantages. Since you maintain control over the trust’s assets, all income generated is taxable on your personal tax return. The revocable nature of the trust means that it is treated as transparent for tax purposes, so don’t expect the trust to provide a shield against taxes.

Limited Creditor Protection: Asset protection against creditors is limited with a revocable trust. The control you have over the trust’s assets while you’re alive means that these assets could be claimed by creditors. An irrevocable trust, on the other hand, removes your control over the assets and offers better protection from creditors’ claims.

In essence, while a revocable trust provides flexibility and can be a useful estate planning tool, it falls short in areas like cost-efficiency, tax planning, and asset protection. Be sure to weigh these cons carefully against the potential benefits before proceeding.

Contact an Atlanta Estate Planning Attorney at Trace Brooks Law with your questions about revocable living trusts, including whether a revocable living trust or will is right for you.

Pitfalls Description
Initial and Ongoing Costs Setting up and maintaining a revocable trust can be expensive and time-consuming due to the re-titling process required for asset transfer. Failure to re-title assets properly may lead to probate, defeating the purpose of the trust.
No Tax Advantages Revocable trusts do not offer tax benefits since the creator retains control over assets, resulting in all generated income being taxable on personal tax returns. The revocable nature of the trust means it is not effective for tax planning purposes and does not shield against taxes.
Limited Creditor Protection Asset protection from creditors is restricted with a revocable trust because the creator maintains control over assets during their lifetime, making them susceptible to creditor claims. Unlike irrevocable trusts, which relinquish control, revocable trusts provide less effective protection against creditor actions.

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