A lot of people harbor misconceptions about certain aspects of the estate planning process. This is very common when it comes to the way that many folks think about trusts. Let’s look at some of the myths that circulate so you can go forward with a fresh perspective.
Trusts Are Only For Very Wealthy People
Individuals that have estates that are valued at more than $11.58 million are exposed to the federal estate tax. These folks do use trusts to gain tax efficiency.
However, there are numerous different types of trusts. Some of them would not help someone that is concerned about the impact of the estate tax.
You Lose All Control of Assets You Sign Over to a Trust
When people have a little bit of information about anything, there can be some confusion based on a shred of truth.
The most common trust used by most people is a revocable trust. In that trust, you retain the right to amend, modify, even revoke the trust in its entirety during your lifetime, assuming you are competent to do so. Therefore, you would not lose any control if you establish a revocable living trust. All assets owned by the trust would still use your Social Security number so there are no new tax forms to file.
Revocable trusts often include provisions to minimize any federal estate tax you might owe. So, getting back to the estate tax, upon your death a portion of your revocable trust would become irrevocable to assure maximum use of your federal estate tax exclusion.
If you are in this situation, the assets allocated to this type of trust would not be part of your taxable estate. As the name indicates, you wouldn’t be able to revoke the trust, and in most instances, you would not be able to change the terms in any way.
This does not mean that you would not have control over certain important details when you establish the trust, and this is why they are effective. That’s a subject for another blog post.
Trusts are Complicated to Administer
This is another falsehood. When you hear all the facts, you will see why revocable living trusts are very commonly used, it has a lot to do with the administration process.
When a will is utilized, rather than a trust, it would be admitted to probate by the executor. This is a legal process that takes place under the supervision of a court. Depending on the jurisdiction, it will typically take about eight to eighteen months for probate to run its course.
Without court permission, no inheritances can be distributed during probate, and there are considerable expenses that accumulate. Probate is a public proceeding, so interested parties can access records to find out all the details. Plus, anyone that wants to challenge the validity of the will can come forward during probate.
If you use a revocable living trust instead of a last will as the centerpiece of your estate plan, all of these drawbacks are minimized. While you are alive and well, you can act as the trustee and the beneficiary, so you would maintain total control of the assets titled in the name of the trust. For the trust to work to your advantage, it is critical your assets either be titled in the name of the trust or connected to the trust via a proper beneficiary designation.
In a real sense, there would be no difference in your day-to-day life with regard to your ability to use your resources.
You would name a successor trustee in the trust declaration, and your heirs would be the beneficiaries. After your passing, the trustee would distribute trust assets to the beneficiaries, and the probate court would not be involved.
This is one of the benefits that living trusts provide, but there are a number of others.
Trusts are Expensive to Create
Compared to what? Yes, there are obviously going to be some legal fees involved if you engage an estate planning attorney to help you create a living trust. However, all things considered, the investment will pay dividends, and it may maximize the value of your estate in the long run.
Download Our Estate Planning Worksheet!
Our firm has prepared a very useful worksheet that you can go through to gain a more comprehensive understanding of the estate planning process. It is being offered free of charge, so we urge you to take advantage of this opportunity to build on your knowledge.
To obtain your copy, visit our worksheet access page and follow the simple instructions.