We speak to a lot of clients, and we find that many of them harbor misconceptions about living trusts. In this blog post, we will look at five of them so you can see a clear picture when you are engaged in your estate planning efforts.
Trusts are only for wealthy people.
This is one of the most commonly held beliefs, but it is patently untrue. There are certain types of trusts that are utilized by high net worth individuals, but a living trust can be a great alternative to a last will for a wide range of people.
One of the things about a last will that is less than ideal for the inheritors is the fact that it must be admitted to probate. The executor that is named in the document handles the estate administration tasks, and the probate court provides supervision.
Most people would like their loved ones to receive inheritances in a timely manner. This will not happen when probate enters the picture. An uncomplicated estate will pass through probate in perhaps nine months to a year. For some, this is a mere inconvenience, but the time lag can cause hardships for people that have immediate financial need.
Another probate drawback is the red ink. Numerous expenses accumulate during probate, including a filing fee, the executor’s payment, legal fees, accounting charges, and appraisal and liquidation expenses. All of the money that is shelled out during probate is essentially coming out of the pockets of the rightful inheritors.
If you were to use a living trust instead of a last will, the trustee would be able to distribute assets outside of probate. As a result, all of these pitfalls would be avoided.
You lose control of assets that you convey into a living trust.
Another notion that we often hear is the idea that you lose personal control of assets that you convey into any type of trust. With a living trust, this is not the case. If you establish a living trust, you are called the grantor or settlor.
The trustee administers the trust, and the beneficiary can receive monetary distributions from it. While you are living, you can act as the trustee and the beneficiary, so you retain total control. Plus, you have the power of revocation. At any time, you can dissolve the trust entirely and take back direct personal possession of the property.
It is expensive to create a living trust.
Once again, this is another myth. As we stated previously, there are innumerable expenses that are incurred during the probate process if you use a will. There is a minimal expense to obtain legal guidance when you are establishing the trust, but in the long run, it is an affordable option.
There are complicated tax issues when you have a living trust.
When you have a living trust, the assets are still considered to be yours in the eyes of the Internal Revenue Service. As a result, if you have income producing resources in the trust, you would claim the income on your personal tax returns.
Assets in a living trust cannot be touched if I am sued.
The fact that you have total control of the trust is positive on the one hand, but when you retain incidents of ownership, the assets in the trust are not protected in any way. If you are the target of a lawsuit, those assets would be available to litigants seeking redress.
Along these lines, if you were to apply for Medicaid to pay for long-term care, assets in a living trust would be counted. The same thing is true when it comes to the federal estate tax.
Learn More About Important Estate Planning Topics!
We do everything possible to provide educational opportunities to people in all parts of Macomb County. One of our initiatives is the estate planning seminar series that we are very passionate about. When you understand why estate planning is so important, you are motivated to take action for the benefit of your loved ones, and this is why we hold these seminars.
There is no admission fee at all, so you have everything to gain and nothing to lose if you attend the session that fits into your schedule. We do ask that you register in advance, because seating is limited. You can visit our seminar page to check out the dates and obtain registration information.