Living Trust Myths

Some myths concerning living trust continue to prevail today. Although a living trust can solve many of your estate planning problems, it does not solve them all.  The following list contains the most prevalent myths along with the realities.

Myth 1: A Living Trust Protects My Assets from Creditors.

A living trust provides no protection from creditors.  Part of the reason is that the trust is revocable.  If it were irrevocable, some creditor protection might be available, but of course, you would lose control over your property.

Myth 2: A Living Trust Saves Taxes

The act of creating a living trust does nothing to reduce your tax burden.  However, all of the estate tax saving strategies available to you under traditional will planning are also available to you with your living trust.  By including appropriate language in your trust, you can reduce estate taxes.

Myth 3: If I Have a Living Trust, I Do Not Need a Will

As we mentioned earlier in this chapter, you will still need to have a will drawn in addition to your living trust.  Its purpose is to direst any property not already owned by your living trust to your living trust and to name guardians for any minor children.  You won’t need a complex or expensive will, but it is necessary.

Myth 4: All My Property Will Ultimately Be Directed to My Living Trust

Some people believe because their living trust is set up to handle all their property, eventually all their property will end up in their trust.  Nothing could be further from the truth.  Property held as joint tenants with right of survivorship will pass by title no matter what your trust says.  The same is true for beneficiary designations of life insurance, retirement plans and annuities.  You must play an active role in seeing that your property ends up in your trust, this is called “funding your trust.”

Myth 5: When I Die, My Living Trust Will Prevent Delays Typically Associated with Probate

It is true that the time delays at your death are likely to be much less than that of probate, but some delays will take place.  Your trustee must still complete many of the administrative duties of an executor including the preparation and filing of your estate tax return, payment of debts, creditor notices and so on.  The process is more difficult in some states than others, so check with your attorney.  If time delays are likely to be a problem in your state, make certain that your spouse will have sufficient assets to meet living expenses until trust assets are released.

Myth 6: A Living Trust Eliminates the Cost of Probate

Again, this is only partially true.  Many of the tasks normally performed by an executor must now be completed by your trustee.  Depending on your state of residence and choice of trustee, the cost savings can be significant or minimal.  A living trust does put you in a better position to control costs at your death.