It is said that first impressions are very important because you tend to form opinions that are hard to shake. This can also happen when someone gives you advice about something that you do not know much about.
In the estate planning field, people often spread misinformation about trusts. Unfortunately, people that buy into the myths make mistakes that negatively impact their loved ones. With this in mind, we will take a look at a couple of these widely held misconceptions in this post.
You Lose Control of Assets in a Trust
Estate planning becomes a must as soon as you are a self-supporting adult with people relying on you. If you put a plan in place when you are relatively young to protect your family, you are probably not in a position to surrender control of your assets.
You may hear that you lose control of assets that you transfer into a trust. This can be a total turn off because you are going to need those resources. You do not have to give up control of your resources when you have a certain type of trust.
A wide range of people find that the revocable living trust is a very effective estate planning tool. You can revoke this type trust if you change your mind, so you are not taking any risks.
This is not the only level of control that you have when you create a living trust. The trustee is the person that controls the assets in a trust. You would be the trustee while you are living. You can do whatever you want to do with assets that are technically owned by the trust.
What are the benefits? The use of a will to arrange for asset transfers requires probate. A court would supervise the management of your estate. The beneficiaries of your will would get nothing while the estate is being probated.
It can take about eight months if there are no complications, and it can take longer. Expenses that accumulate during probate shave down the value of the estate, and anyone that wants to pry into your affairs can access the public probate records.
On the other hand, if you use a living trust, probate is not a factor. You can also include a spendthrift clause, and this will protect the assets from creditors after you pass away.
If you want to make sure the beneficiaries do not burn through their inheritances too quickly, you can dictate distribution terms. For example, you can instruct the trustee to distribute a certain amount each month for a number of years until the beneficiaries reach a certain age.
Trusts Are Only for the Rich
This is another claim made by people that do not understand all the facts. The federal estate tax is a threat to people that are extremely wealthy, because it carries a 40 percent maximum rate.
Most people do not have to worry about it. You can transfer over $12 million tax-free, and the tax would only be applied to the portion that exceeds this amount. Individuals that have this kind of wealth use irrevocable trusts to limit their estate tax liability.
So yes, wealthy people do use trusts, but they also use cars. They may drive a different type of car than many others, but there are motor vehicles that are appropriate for everyone.
The same thing applies to trusts. A person that does not have to worry about estate taxes would most likely utilize a revocable living trust. There are other types of trusts that are used by people of ordinary means.
One of them is the income only Medicaid trust. You can transfer assets into this type of trust to remove assets from your name. This type of trust allows you to qualify for Medicaid in the future. This is important because Medicaid will pay for nursing home care, and Medicare will not.
This is one example, and there are other trusts that can be used to satisfy certain specific objectives. You should understand your options so you can make informed decisions that benefit your family.
Schedule a Consultation!
If you are ready to work with an Oklahoma City estate planning lawyer to put a custom crafted plan in place, we are here to help. You can send us a message to request a consultation appointment, and we can be reached by phone at 405-843-6100.