What are the pitfalls of creating a living trust? We create hundreds of living trusts, and we create very few last wills and testaments by themselves. It’s almost always a part of a living trust. When you do a living trust, most very rarely do just a will.
What are the downfalls? Nothing has all pros, so what are the downsides? The first one that we run into is that people aren’t really trained that when you create a living trust, it doesn’t just all of a sudden get rid of all the work that has to be done when somebody passes away. It just doesn’t.
It’s not a magic wand saying, “Poof! You never have to talk to a bank again. You never have to deal with selling the house.” There’s still work that has to be done. It’s not a magic wand. It eliminates a bunch of hassles that you have with just a will, but it’s not a magic wand.
The second pitfall that a lot of people don’t realize is that when you create it for the first time, you have to then go around to your bank, your financial advisor, real estate. You’ve got to retitle all of those things in the name of your trust.
Most of the time, you can do that with whoever’s helping you create it. They can go through and tell you, “Here’s what happens at the bank,” and even do some of those forms for you so you don’t have to figure them out. But if you’ve got accounts at Wells Fargo or Fidelity or you have life insurance, every single one of those has to be notified that you’ve created a trust.
It can be some work to go through and deal with all of that and get it funded into your trust. If you don’t do that, you’re going to end up in probate anyway. So, you have to get everything into the trust. If you don’t do that when you set it up, it’s like you’ve done a bunch of legal paperwork, but it’s not going to give your family the peace of mind that you intend for them.
What’s another pitfall of living trusts? I don’t think there really is any other pitfall. They do what most people think is supposed to happen by default. We all wish it happened. It’s probably what did happen 50, 80, 100 years ago by default. Not anymore. Not with how litigious everything is and not how banks operate, real estate title companies operate. Nobody wants to take liability for anything. They don’t want to do anything unless all the Is are dotted and Ts are crossed. It’s not easy anymore.
The idea you have in your mind of “Yeah, they’ll figure it out when I’m gone”—maybe that was 50 years ago, but nowadays, you can have that mentality by creating a living trust, getting it funded, et cetera. I don’t think there are any other pitfalls.
They operate with a lot of simplicity for your family when an emergency happens, as long as things are set up correctly and kept up-to-date up to when the emergency happens. That’s going to make things as easy as possible for your family. It’s not easier to transfer everything into their name now, because then what? They get into a car accident, or they pass away, or they have an emergency, or somebody sues them. There’s not a lot of better ways to do it.
Put it in a trust that you control. There’s no difference in how you run your life. Once you set it up, you might as well have it all in there, have it organized, have it simple for you while you’re alive, and super simple for them when there’s an emergency. Those are the only couple of pitfalls I can think of.
Summary
A living trust comes with some pitfalls to consider. One common misconception is that it magically eliminates all post-death hassles. However, it doesn’t replace all the necessary tasks.
Another pitfall is the initial effort required to retitle assets in the trust’s name, which involves coordinating with banks and other entities. To avoid probate, you must ensure all assets are appropriately retitled under the trust. Proper setup and maintenance are crucial for peace of mind and efficiency in estate planning.
