People often harbor misconceptions about estate planning. This is one of the reasons why it is very important to discuss your options with a licensed attorney from our firm. Unfortunately, many people make assumptions, and the results of their poor decisions are less than ideal.
This often enters the picture when it comes to the legal device called a living trust. In this post, we will debunk five myths that circulate about living trusts.
Only wealthy people use living trusts.
The notion that living trusts are only for high net worth individuals is patently false. One of the major reasons why wealthy families create trusts is to avoid the estate tax. While minimizing estate taxes is an excellent goal it is not the only function that a living trust could fulfill. There are other functions such a remarriage protection, and giving beneficiaries protection from losing assets to divorce, creditors, predators, poor financial management skills or the ravages of addiction. It could also protect a special needs beneficiary from losing government benefits due to an influx of assets.
You lose control of assets that you convey into a trust.
Getting back to the trusts that are used by those that are exposed to estate taxes, they would be irrevocable trusts that cannot be revoked or dissolved later on. Generally speaking, the grantor of such a trust would not be able to act as the trustee and administer the trust.
This is called “surrendering incidents of ownership” in legal parlance. Because the grantor of the trust has no ongoing control, the assets would not be part of their estate for tax purposes.
A living trust is a revocable trust, so you can in fact change your mind and dissolve this type of trust at any time. There is no loss of control at all, and you can actually act as the trustee and the beneficiary while you are living.
A trust is expensive, but you can create your own will for practically nothing.
The first of all, you should understand the fact that planning your own estate using a worksheet that you obtain online is not a good idea.
You don’t have to take our word for it, because the highly regarded, totally objective people at Consumer Reports recommended against DIY estate planning a few years ago.
Secondly, there are expenses that accumulate if you use a last will as the centerpiece of your estate plan. If you heed the advice of the experts and engage an estate planning attorney to help you devise a will, there will be legal fees.
Plus, the will would be admitted to probate, and probate expenses will typically consume between three and seven percent of an estate.
It takes forever for your heirs to receive their inheritances if you use a trust.
Another drawback that goes along with the use of a last will is the time consumption. Probate will take about eight or nine months to a year, even if there are no complications. The inheritors do not receive anything during this interim, so they have to play a waiting game.
Things are entirely different when a living trust is used. The distributions are not subject to court supervision, so in most cases, the trustee can get assets into the hands of the beneficiaries in a much more timely manner.
If you don’t know anyone personally to act as the trustee after you die, you cannot use a living trust.
This is not the case at all. There are professionals that can be engaged to handle the trust administration duties. These would include banks, trust companies, and some attorneys.
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