Revocable Living Trusts: The Good, the Bad and the Ugly

WDC NEWS 6 STAFF March 27, 2025

2 4 minutes read

Revocable Living Trusts: The Good, the Bad and the Ugly

The probate system is “almost universally corrupt,” extracts “unconscionable profits” and is controlled by “local party bosses” primarily for grift and political gain.

At least that’s how Norman Dacey depicted probate in his bestselling book How to Avoid Probate! Dacey was something of a gadfly in the financial planning world in the 1960s and ’70s (his follow-up book was What’s Wrong With Your Life Insurance).

An insurance salesman with no legal training, he became perhaps the most famous promoter of the idea that probate was akin to Dante’s hell and should always be avoided using what is known as a revocable living trust, or RLT.

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Probate might have gotten a bad rap

Today, in part because of Dacey, many estate planners insist that RLTs are the only way to go, which may lead you to wonder if you need to abandon the idea of a will in favor of an RLT. Maybe. Or maybe not.

Dacey’s advice and his hyperbolic language can be relevant for some, but it tends to be applied too broadly.

Importantly, Dacey’s views on probate do not closely resemble the system today, and he had plenty of credible detractors at the time of his writing, which was during the Johnson administration.

Notably, in 1967, Time magazine dismissed Dacey’s How to Avoid Probate! as a “pleasant way of enriching his own estate.”

How living trusts help avoid probate

Regardless of his motivation, the RLT technique Dacey promoted is sound and, when used properly, actually does work to avoid probate.

An RLT, like any trust, is a method of holding property where the “legal” aspect of ownership is separated from its “beneficial” component.

The legal aspect is transferred to a trustee while the beneficial component is retained for one or more beneficiaries. Once transferred, the original owner (the “grantor”) no longer owns it.

Since probate applies only to property that the person who passed away owned at the time of death, transferring all your property to a trust before you pass avoids probate.

But if you still need to eat and have bills to pay, giving up all your property today may not be very practical. This is where an RLT can be useful — you can be the initial trustee and the sole initial beneficiary.

Regardless, the RLT is still a valid trust under state law. John Doe, trustee of the John Doe RLT, is respected by the law as a person distinct from John Doe himself.

The RLT document will provide for a successor trustee and dictate how the trust property is to be distributed upon your passing, effectively substituting for a will.

These trusts come with cons: Costs and taxes

So, opting for an RLT is a no-brainer, right? Not necessarily. Although it varies from state to state, probate is often a simple, efficient way to protect the interests of your heirs and ensure that your wishes are carried out. It provides neutral supervision of estate administration and a useful forum for resolving disputes.

Cost, while often touted as a reason to avoid probate, is a red herring. Probate fees are often fairly modest.

In Maryland, for example, estates with assets of $2.5 million pay a probate fee of only $2,000. The costs to set up and maintain an RLT can be far greater.

Because the RLT has multiple functions, legal fees for drafting one often exceed those for drafting a will. Once the RLT is drafted, the work has only just begun. Titled assets, like real estate, brokerage accounts and bank accounts, must be re-titled, or the RLT doesn’t work.

That could mean lots of legwork and additional legal fees. Some assets might be left out, either because they were missed or because of other impediments, such as contractual restrictions on the transfer of business interests or a DMV that refuses to title a vehicle in the name of a trustee.

But at least there are tax savings, right? Wrong. Because an RLT is revocable, it doesn’t exist as a trust as far as the IRS is concerned.

Unlike with an irrevocable trust, the IRS views all the assets in an RLT as still belonging to the grantor.

The tax advantages that some promoters tout with respect to RLTs are therefore no different from the tax advantages available outside an RLT.

So, which is preferable: Trusts or probate?

The ultimate question is whether the hill is worth the climb. The answer is sometimes yes and sometimes no.

RLTs can be expensive and require a lot of work to set up and maintain. But they do keep your estate private.

Probate files, on the other hand, are open to public inspection. If an estate has real property, this might generate unwanted solicitations from brokers offering their services.

Even nosy neighbors or relatives can sneak a peek (although that may be a celebrity-level interest in our personal affairs some of us can only aspire to).

Despite the plaintive cries of Norman Dacey and his acolytes, not to mention the occasional complex and messy estate administration, probate can be a desirable option. Neutral, objective supervision and required accountability can be a good thing.

The fact is that both RLTs and will-based plans can be good options, and they each have their own pros and cons.

Willingly subjecting your estate to probate, therefore, doesn’t mean you don’t love your family. If that’s the case, it’s probably because of Uncle Ralph’s insistence on picking his teeth at the dinner table.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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