|
|
|
Nbr. |
Disadvantage |
Description |
|
1 |
No Income Tax Savings |
A Living Trust neither avoids nor saves any
taxes while you are alive. You will be taxed on all the income the
trust earns. During your life, you will file these taxes as part of
your personal tax return. After you die, the trust will pay taxes as
its own entity on any income over $600 and generally at a higher
rate than you paid as an individual. |
|
2 |
No
Estate Tax Savings |
Should your estate exceed the value of the
unified credit ($1,000,000 in 2002), you will owe federal
estate taxes on both probate and
non-probate assets. If this describes your situation, then consult a
tax professional to learn about ways to eliminate your tax
liability. |
|
3 |
More Complex and
Expensive Than a Will |
A lawyer would charge you much more to
create a Living Trust than a will (about $2,000 vs. $400) so it
initially more costly to set up. The hardest part of setting up a
Living Trust if you create a Living Trust yourself, is
transferring your property to the
trust. Once you have transferred your assets, you will need to
maintain the trust records apart from the records of any personal
assets you own. |
|
4 |
No deadline of
claims for creditors |
Probate imposes a limit on the time that
creditors may presents bills to your executor while a trust does not
fall under the same guidelines. Thus a possibility exists that a
creditor could sue a trust or its beneficiaries for money long after
your death, even after the trust ends. |
|
5 |
Does not avoid creditor
claims during your life |
If you maintain control over your assets in
a trust, the courts could force you to pay your creditors with
assets from your trust. If you set up a trust to avoid paying
creditors, the courts will consider the transfer of assets
fraudulent and you could incur a fine in addition to having to pay
the creditor. |
|
6 |
Does not eliminate
the need for a will |
A will can name a guardian for your
children, name the executor of your probate estate and state that
the executor does not need to be bonded. You may have some last
minute assets that you did not transfer to your trust. These assets
will need at least a pour-over will to provide for transferring them
to the trust. If you do not a will to cover these circumstances, you
will be considered to have died intestate, and must follow the
probate laws for your state under that condition. |
