Establishing a trust is a great way to protect your assets and ensure that your loved ones are taken care of after you pass away. However, there are some potential drawbacks to setting up a trust that you should consider before making a decision. One of the disadvantages of a trust is the extra paperwork. To make sure that the trust is legally binding, you must transfer ownership of all assets in the trust to yourself as the trustee.
This means that if an asset has a title (such as real estate, stocks, or mutual funds), you must change the title to show that it is now owned by the trust. For example, if you want to put your house in the trust, you must prepare and sign a new deed to transfer the property to yourself as trustee. Although this may seem like a hassle, it is worth it in the long run. The time and money saved on probate will be well worth it, not to mention the stress your family will be spared from having to access your assets after you die.
Additionally, transferring assets to a revocable trust will not save income or estate taxes. The main disadvantages associated with trusts are their perception of irrevocability, loss of control over assets placed in trust, and their costs. However, these drawbacks are usually outweighed by the numerous advantages that come with having a living trust. For instance, courts can effectively rewrite your will under the Family Protection Act 1955 if they consider that your family members have been disadvantaged by its provisions.
Creating a living trust is not difficult or expensive, but it does require some paperwork. The first step is to create and print a trust document, which you must sign before a notary public. In most states, transfers of real estate to revocable living trusts are exempt from transfer taxes that are usually imposed on transfers of real estate. However, in some states, transferring real estate to your living trust could result in a tax. In conclusion, while there are some potential drawbacks to setting up a trust, they are usually outweighed by the numerous advantages that come with having one.
The extra paperwork and recordkeeping may seem like a hassle at first, but it is worth it in the long run.