A living trust is an important component of every estate plan. But, before you make a decision to include one in your personal estate plan, you should dispel some of the most common myths regarding living trusts. These myths have been circulated through the general public, and are frequently repeated online. In an effort to debunk the most common of these misperceptions, this article will examine the 3 top living trust myths.
The basics of creating a living trust
The procedures for creating a revocable living trust are pretty simple and straightforward. Living trust attorneys sit down with their clients to determine their goals and objectives, and then draft the trust document selecting all the terms terms under which the trust must operate. Living trust attorneys will discuss all options with their clients before recommending a particular trust design. Once the trust document has been drafted, the next step is to transfer the clients property into the name of the trust. This is referred to as “funding” the trust. After the trust is completely funded, the trust becomes the new owner of all the trust property.
Myth #1: Creating a living trust means losing control over my property.
Many clients are under the misconception that, because the trust owns the property, they will lose all control over the property that was transferred into the trust. However, this is not at all the case. A living trust is a revocable trust, meaning that you have the ability to manage the trust and the right to use and enjoy all of the property included in the trust as you see fit. Transferring property into a living trust results in no loss of control over the assets.
Myth #2: A living trust is the only estate planning tool I need.
Most living trust attorneys will tell you that, although a living trust is an invaluable estate planning tool, it certainly is not the only tool you need. For instance, a living trust does not allow you to name a personal representative to administer any estate assets, or a guardian who will take care of your minor children in the event of your death. As such, you will need to also create a last will and testament in order to address both those needs. There are also many other estate planning documents you need to address other financial and medical planning considerations that a living trust simply does not cover. Examples of such documents include a durable power of attorney for property, a living will, a durable power of attorney for health care and a HIPAA disclosure authorization. The goal is to have a comprehensive estate plan.
Myth #3: A revocable living trust can be used to avoid estate taxes.
While a living trust for a married couple may be designed to minimize estate taxes in certain cases, generally speaking a revocable living trust does not help to reduce or eliminate potential estate tax liability. Although there are different types of trusts that can serve this purpose, living trusts are typically not one of them. Furthermore, a living trust will not provide significant asset protection during your lifetime. If you wish to create an estate plan that provides effective asset protection or tax relief, it is best to discuss options with an experienced estate planning attorney. A popular and effective asset protection tool authorized under the Nevada Revised Statutes is a self-settled spendthrift trust, commonly referred to as a Nevada Asset Protection Trust. There are also numerous strategizes involving irrevocable trusts that can be utilized to dramatically reduce, or even eliminate, an estate’s exposure to estate taxes.
What are some of the advantages of a living trust
Historically, the primary purpose most clients had for creating a living trust is to avoid the lengthy, public and costly probate process. While avoiding probate is still one of the advantages of creating a living trust, we have found that for our clients it is not generally perceived as the primary benefit. In Nevada, a living trust can be designed to protect a loved-one’s inheritance from claims associated with a future divorce, including claims for alimony and child support. With divorce rates hovering at around 50% in many states, we have seen a significant amount of family wealth awarded to divorcing spouses over our 20 years of handling trust and estate administrations. A living trust may also be designed to protect a beneficiary’s inheritance from other lawsuits, and even bankruptcy, should a beneficiary fall upon especially hard financial times. A living trust can be structured to preserve a beneficiary’s right to government benefits for his or her long term-care expenses and not expose the inheritance to government reimbursement claims in the event a beneficiary is receiving government benefits at the time he or she receives the inheritance. A living trust may also be drafted to protect an inheritance against spendthrift behavior or irresponsible asset management for those beneficiary’s who lack financial responsibility or investment management experience. Living trusts may also be structured to incentivize certain behavior or activity, such as developing a strong work-ethic, pursuing a higher education and maintaining full-time employment, while not allowing a loved-one to live off of his or her inheritance and not experience the intrinsic rewards associated with setting and achieving lifetime goals. These are just a few examples of the advantages that may be achieved from a customized living trust drafted by an experienced trust attorney.
If you have questions regarding living trusts, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.