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| 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. |
