Many people think they know what a trust is and what it can do for them, but many don’t. Check out these top five myths to see if you understand their benefits and limitations.
Myth #1: Trusts Are Only for the Wealthy
Fact: Trusts can be valuable for many middle-income families. A trust can help avoid probate for your loved ones, manage your assets if you become incapacitated, protect minor children, simplify the transfer of assets, and keep your financial affairs private. Bottom line, a trust can make life easier for your loved ones after you die. For many families, a trust is about making life easier for loved ones—not preserving vast wealth.
Myth #2: A Trust Means You Lose Control of Your Assets
Fact: If you have a revocable living trust, you’ll typically remain in total control. Normally, you (the creator of the trust, called a grantor) usually serve as the trustee during your lifetime, meaning you can continue to buy and sell property, change investments, add or remove assets, and revoke it if your circumstances change. The trust is only managed by your successor trustee if you become incapacitated or after your death.
Myth #3: A Trust Eliminates All Taxes
Fact: Sorry, most living trusts do not reduce estate or income taxes. Many people believe this myth, but the reality is a standard revocable living trust generally won’t provide any tax savings to you during your lifetime. Certain specialized irrevocable trusts may provide tax advantages but are very specific to certain situations and require careful planning with an experienced estate planning attorney.
Myth #4: Once You Sign a Trust, You’re Done
Fact: Again, sorry. Your estate plan, including your trust, only works if it is kept up to date. One HUGE mistake people make is creating a trust but never transferring assets into it. Again, working with an estate planning attorney will help ensure this doesn’t happen for you. To be effective, many assets must be retitled into the trust’s name, such as real estate, non-retirement investment accounts, some bank accounts, and business interests. Your trust should be reviewed at least every three years to ensure it stays up to date.
Myth#5: A Trust Protects All Your Assets from Creditors, Nursing Home Costs, and Lawsuits
Fact: This is a big myth; it depends on the TYPE of trust. A revocable living trust generally won’t shield your assets from personal creditors, lawsuits, long-term care expenses, or Medicaid eligibility rules. Working with an experienced estate planning attorney who understands your goals and can ensure your trust is designed properly is crucial.
I hope this post clarified some misconceptions about what trusts can, and cannot do. They can be a valuable estate planning tool for you, your hard-earned assets, and loved ones. If it is time for you to update your plan or add a trust, please contact me by phone or through my website. My phone number is: 513-399-7526. My website is: www.davidlefton.com. You can even schedule a meeting with me directly from the website.