There are 7 disadvantages to a living trust. Depending. In this episode,
I'm going to address the question what are the disadvantages of a living trust.
Get ready. This is going to entertain you but also educate and inform you.
So, my name's Doug Andrew and I've actually helped people optimize their financial assets, minimize
taxes, empower their authentic wealth, and also help them with their estate planning for 4 and a
half decades. So, even though I'm not an attorney, I actually have taught thousands of hours of
advanced continuing education to estate planning attorneys. And so, when I talk about living trusts
and wills, many times these attorneys who have been to law school to learn how to do this go,
"Oh, my heavens. I didn't understand that." Or "Doug, you seem to be able to simplify this
better than most people." So, in this episode, I'm going to go through what I feel are the seven
big disadvantages of having a living trust. And you may go those are disadvantages. Well,
I'm going to twist it to show you what I mean by this. So, get ready to gain insights, and if this
intrigues you and you know somebody who's won green, "Golly, should I set up a living trust?"
Or "Should I write a will", recommend a share this, subscribe and look at some
of the other videos that I've done about wills and trusts and what is probate. So,
I'm going to highlight a few things. Get ready and then I'm going to go through the 7 disadvantages
of a living trust. So, you have probably heard the statement "Where there's a will, there's a
probate." So, what is probate? Probate is the process of when somebody passes away, taking their
properties --what they own and distributing those assets to the rightful heirs. But it's done under
the jurisdiction of a court. That's called probate. When you have a will, if you want the
will followed, you must do it through a probate. So, where there's a will, there's a probate. Now,
probate isn't all bad. But most people would like to avoid it because it's very costly and timely.
Basically, when you probate a will, you have to cover seven other parties before your heirs get
their share. So, what has to happen is under the jurisdiction of a court, you have to make sure
all federal taxes are satisfied from the deceased person's estate then state taxes than local taxes.
Then the court fees have to be taken care of. And then you have the attorney's fees, you have the
executor fees. You actually get down to the actual administrator and then you have to satisfy the
creditors. And then finally, after all of those have been satisfied, (and it could take 2 or three
years to make sure that all happens) the heirs finally get what's left over. A lot of people want
to avoid that. They want to avoid probate so they set up a living trust. So, the first disadvantage
of a living trust is if you want to go through probate, that's a disadvantage to have a living
trust because you won't go through probate. That's why people set up living trust to avoid
probate. Having said that, there's actually an advantage because when you probate an estate,
you have to file a legal notice. And any creditors have like six months to come forward to make claim
on the estate. If they don't do that within 6 months, they can never make a claim against the
estate again. But I've seen many dentists doctors professionals who do not probate their estate.
And 15 years down the road, somebody comes out of the woodwork and says, "Oh,
your deceased father owed me money." And they can sue the estate. And if you didn't file a probate,
you have to defend yourself. If you file a probate, they have 6 months to come to
make claims. Other than, that it's like, "No. Here's the probate. You had your chance. Bye!"
So, a probate actually is an advantage. And so, a lot of people will keep a small asset like an old
tractor or an old motorcycle that's worthless out of the estate and probate it. A disadvantage of a
living trust is it avoids probate. If you want to go through probate then I wouldn't have a living
trust. Number 2, when we talk about a living trust, most people do it because they want to
keep things private. If you want to have all your assets or your family's assets to be aware to make
it public information then don't have a living trust because that's a disadvantage. Because
when you have a will, it's public information. The court can say what all your assets are and
everything. So, the second disadvantage of a living trust is you do not get to have the public
see all the things that you owned. But if you want to keep it private then you have a living trust.
Okay, what's the third disadvantage? Well, if you want to destroy the love of your family,
then I would recommend you don't have a living trust. Because a living trust seems to preserve
the love of the family better because they're not fighting over who gets what. Because a trust is
very clear on who gets what and it's managed by a trustee. So, a big disadvantage if you want to
destroy the love of your family and see them fight among each other after you pass away, I wouldn't
set up a living trust. So, that would be a disadvantage. If you want to preserve the love of
your family, I guess you get a living trust. And that's what it does. What about liability? See,
when people set up a living trust, they usually cut their liability exposure at least in half. So,
a lot of times people will set up an a/b trust or a husband's trust and a wife's trust. In my case,
I have all of my business assets in my trust. All of the domestic assets the house and so forth and
my wife's trust. So, if somebody gets hurt or there's negligence or what have you... Because
I've had many clients. I had young women, leaders in church organizations. I've had scout masters
who have been sued because they didn't file a tour permit and they're sued for a million bucks.
They can come after 100% of what you own in joint tenancy. See, joint tenancy avoids probate. If
you die, everything you have in joint tenancy, there's no probate. It goes to that person. But
what happens is you both own it all. So, if you are negligent, if somebody slips on your porch and
the house is in your name under joint tenancy, they can sue you for the entire value of the
house because you own all of the house and your spouse owns all of the house. And so,
people set up trust to cut it in half so that only half of the house is exposed to
liability lawsuits and so forth in this who happy society. And so, it cuts the liability
in half. They can only sue you or wipe you out for half of your assets because you split it up.
So, what's a disadvantage of a living trust? --Is if you want to have full liability exposure,
don't set up a living trust. People go, "I thought this video was about disadvantages?" Well,
I'm telling you the disadvantages. But frankly, most people want the advantages of a trust. So,
I'm just reversing it here if you can't tell. So, what's another disadvantage of a living trust?
Well, if you are one that has a lot of assets and when you die you just love the government coming
in and taxing you on all of that. At different times, the estate tax is due. This is not income
tax. This is a state tax. This is where 9 months after the death of both the husband and the wife,
you have to file (I think it's called a 706 form) with the IRS. And it used to be back in the late
1990's, you had to do that and any net worth over $600,000 started out at 37% estate tax
and it topped out at 55%. Then the exclusion went up to a million bucks. And now, as I'm recording
this episode, it's like 10 or 11 million. But they can do away with that. Tax revenuers,
they love to tax people 30, 40, 55 percent that are 6 feet under because they can't complain.
The heirs can't do anything about it. So, tax revenuers love to get tax revenue with estate tax.
A disadvantage to a living trust is it's actually will cause you to pay less in a state tax.
People go, "Well, isn't that what you would want to save unnecessary estate tax?" Well,
yeah but if you love to give as much as you can to the government, that would be a disadvantage.
What it does is it takes the estate tax liability in half. If the estate tax limit is 1 million,
5 million, it doubles to 10 million or 20 million when you have a trust because you
divide up the estate into 2. What's another disadvantage of a living trust? If you detest your
children you want to disinherit them, don't set up a living trust. Because this is what happens:
Usually with a husband and wife, one of them will pass away first. And the other one gets lonely.
And so, eventually they remarry. This has happened many, many times. And I can think of a client
right now who they thought they were going to ride off into the sunset of retirement for 20-25 years.
And within 90 days after the wife retired, she died of a massive heart attack. He was so lonely
and so he got remarried and she said, "Prove to me your love. Put everything in my name." And he
wanted to prove that and so he put everything in his trust in her name and he was very angry
because I was the successor trustee on his wife's trust and he begged me to do it. Like, "I can't
do that. The trust is now set in concrete. That is your previous wife's trust." He was very mad
that I wouldn't do that. Well, he was grateful because as soon as she got everything in her name,
she went bye-bye! And she took off with all of his assets. He was destitute except he had his
previous wife's trust that he could draw from. And he has thanked me many times for not giving
in. Because frankly, I could have been sued by the 3 children. Now, this is what normally happens,
if you don't have a living trust and that happens. And let's say your mother passes away,
your dad remarries and then he passes away, guess who gets all the assets? Usually all of the new
wife's kids. And your kids are disinherited. So, the disadvantage to a living trust is
if you want to disinherit your kids and have all your assets go to somebody else's
kids, don't set up a living trust, okay? The last big disadvantage is if you own life insurance,
when you die, life insurance is one of the very few assets that is not probated. It's cut and
dried. Whoever you name as beneficiary gets the money tax-free. And that money is not subject to
the claims of the creditors of the deceased. So, if all you own is life insurance, don't waste your
time with a living trust. It's a disadvantage to have a living trust. But most people have other
assets. If you haven't understood the question that I'm answering in this episode is "What are
the disadvantages of a trust?" Hello? Hopefully, you realize the advantages of a living trust. It
avoids probate, it keeps things private instead of public. Okay, it settles the same one day. There's
no probate. You avoid unnecessary estate tax. It preserves the love of the family it avoids
the liability exposure and losing everything you've owned. The second spouse syndrome and
disinheriting your kids and also it includes everything. And if you have life insurance,
it's not going to be probated anyway. So, I would probably surmise that you would prefer to have a
living trust. Because any disadvantages are far outweighed by the advantages of a living trust.
So, I've helped many, many people do that. And if you'd like to learn more be sure and click on this
episode. Search my channel because I address this question what are the advantages of a
living trust and what's a probate and so forth. But I'll tell you what, I mentioned life insurance
avoids probate. If you have life insurance, you don't even have to worry about a trust.
And so, my favorite vehicle for estate planning is what I call The Laser Fund. It's a maximum-funded,
tax-advantaged life insurance contract. And most people I consult, they leave behind when they die
1 million, 5 million, 10 million dollars totally tax-free. Whether they have a will or a trust or
not, doesn't make any difference because it avoids probate. It's tax-free. And the
creditors of the deceased cannot make claim on this unless they pledged it as collateral. It is
one very powerful tool to maximize what you leave behind. If you'd like to learn more about this,
I'll tell you what, this is my 11th book. I will pay for this book. It retails for $20. This isn't
about selling you a book. I will gift this to you free if you go to laserfund.com, LASERfund.com and
contribute a nominal amount towards the shipping and handling. I'll cover the rest of that cost
and then I'll pay for the book. It's 300 pages of charts, graphs, and explanations. It's actually
2 books in 1. The other book has 62 actual client stories about how this is used for estate planning
and you'll gain insights into opportunities and questions like this one in this episode that
will allow you to go, "Wow! I didn't know what I didn't know until I learned something." And now,
you will want something that you didn't know you wanted until you got educated.