Mythbusters: 6 Common Misperceptions about Living Trusts
We’ve helped more than 5,000 clients prepare Living Trusts over the years, and if there’s anything we’ve learned, it’s that there’s a lot of confusion when it comes to these documents. Something else we’ve learned: our clients consistently tell us that the process was a whole lot easier than they thought it would be.
Here are a few common myths about Living Trusts:
Myth #1: A Revocable Trust is Always Complicated. FALSE
These days a Revocable Living Trust is the basis of a solid estate plan for the majority of people because the benefits far outweigh those of a Last Will and Testament. A Living Trust protects your privacy, while a Will becomes a public probate record.
We excel at making the process straightforward–our clients really do comment on how easy this is—they credit our team and our workbooks. You just need to be thinking about who should receive your assets and what trusted person should administer your estate.
Myth #2: A Revocable Living Trust Reduces Estate Taxes. FALSE
A Revocable Living Trust has absolutely nothing to do with your estate tax bill. Its primary purposes are to protect your privacy, plan for disability and avoid probate.
Myth #3: A Revocable Living Trust Always Avoids Probate. FALSE
A Revocable Living Trust can’t avoid probate by itself; the Trust must be fully funded to avoid probate.
There may be quirks in an individual estate that make probate necessary, such as the need to defend or initiate a lawsuit or deal with creditors, but these situations are rare.
Simply creating your Living Trust isn’t enough; it must be funded. If you have property, deeds must be retitled and moved into the Trust. Assets, such as life insurance and brokerage accounts, must also be moved into the Trust. California Document Preparers transfers the deeds for our clients and helps with financial accounts.
Myth #4: A Revocable Trust Protects Your Assets Against Lawsuits. FALSE.
A Revocable Living Trust does nothing to protect your assets against lawsuits for two reasons.
You can change the terms of the Trust at any time and put assets in and take them back out.
You still personally own the assets titled in the name of the Trust.
Unfortunately, a Revocable Living Trust can’t shield your assets from the claims of creditors. For this, you would need to create an asset protection plan in addition to your Trust. The time to do this is long before a lawsuit is filed against you, and despite the widespread fear of lawsuits, most people will never be involved in one and do not need to plan for such a situation.
Myth #5: A Revocable Living Trust Eliminates All of the Work after the Trustmaker Dies. FALSE.
Sadly, when a loved one dies, there are still many details that will need to be resolved. Your heirs won’t have to go through the agony of probate, but your Successor Trustee will likely need to deal with a number of tasks before the beneficiaries can collect their checks.
Consider the matter of selling the family home and other articles of value, consolidating total assets and items of sentimental value and distributing them among the beneficiaries. If a loved one had been undergoing medical care or was in a nursing facility, there’s a good chance that outstanding bills will continue to trickle in from a variety of healthcare providers that will need to be paid. With a Living Trust, the process is streamlined, but there is a considerable amount of unavoidable administrative work involved in finalizing an estate and, depending on the complexity, this can drag on for quite some time.
Myth #6: Revocable Trusts are Only for Wealthy People. A great big FALSE!
People often underestimate their net worth. Do you own your own home? Have a life insurance policy, savings account, brokerage account and/or a 401K? Expensive jewelry/antiques/cars/artwork? What if you just have very few assets, but you do have life insurance and young children? These are all considered assets. Many people, naïve about their net worth, think they don’t need a Living Trust. The truth is that if you have assets and a family, a Living Trust will save your loved ones the agony of probate at an already difficult time filled with grief and loss. You will also be saving a big chunk of their inheritance—probate is always expensive.