Functions, Misconceptions, & Myths about Living Trusts

Functions of a Living Trust

A living trust is an estate planning tool that allows you, the grantor, to transfer your assets into a trust. Once you, the grantor, create a trust, you must assign a trusted individual, known as the trustee, to manage and distribute your assets that are in the trust to your beneficiaries according to your wishes upon your death.

There are two types of living trusts to be aware of, revocable living trusts and irrevocable living trusts. A revocable living trust is one that can be modified throughout your lifetime, providing a more flexible option for your needs. An irrevocable living trust is much more difficult to alter, but it can be done under very limited circumstances and with the consent of the beneficiaries of the trust. Establishing either type of living trust is important because it allows your loved ones to avoid the probate process entirely upon your death in regard to your assets in the trust.

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Misconceptions of a Living Trust

There are common misconceptions revolving around living trusts and their functions. To avoid the common misconceptions about living trusts, speak to an attorney at Betham Law, PLLC who will answer any and all questions you may have, as well as help you decide if a living trust would be beneficial to you.

1. The first misconception of a living trust is that it is designated for individuals who have a significant amount of assets. This is not the case–there is no minimum amount of money required to set up a trust. A trust can be created for any amount of money. A trust allows you to protect your assets for your beneficiaries no matter the amount of money or amount of assets involved.

2. Another misconception of a living trust is that you relinquish all control over your assets. As stated previously, you maintain control over a revocable living trust. If you want to have full control over your living trust, a revocable living trust is the best option for you.

3. A common misconception of a living trust is that establishing one has tax implications that can burden you. When you establish a revocable living trust, you will file your tax returns as you normally would and proclaim the value of your trust as part of your assets. However, later upon your death, your assigned trustee will file a separate tax ID number and tax return for the living trust because the trust will become a taxable entity. As the trust disburses assets to your beneficiaries, the disbursements can be claimed as deductions and the beneficiaries will claim the disbursements on their individual tax returns.

4. The final misconception of a living trust is that you must pay a fee to your trustee. Your assigned trustee may take on this role without charging any fees. You can do this by assigning the role of your trustee to a trusted family member or close friend.

Myths of a Living Trust

Misconceptions are not the only things revolving around living trusts. There are also common myths regarding these documents. 

1. The first myth about a living trust is that creating one will save money in estate taxes after your death. While it is possible to reduce or defer taxes under a living trust, this same goal can be accomplished through a condition in your will. There are no unique tax advantages for creating a trust over creating a will or another estate planning tool.

2. Another myth about a living trust is that creating one will protect your assets from creditors and health care costs. This is not true because a trust can be revoked during your lifetime. Therefore, your assets are subject to creditors and are made available to pay for your health care expenses.

3. The third myth about a living trust is that buying a “living trust kit” can save money on attorney’s fees. While estate planning may carry a larger price tag than one of these kits, an experienced attorney at Betham Law, PLLC can design a tailored living trust for your specific needs and goals. Your estate plan will be fully customized to meet your needs, specifically including the nature and extent of your assets, the size of your estate, how you want your estate to be distributed after your death, and anything else you need. Additionally, having an attorney draft your estate plan allows the attorney to counsel and advise you about each process in the estate planning process. Not having an experienced attorney draft your estate planning documents can lead to your family or loved ones paying attorney fees after your death to straighten out any unnecessary legal and tax problems with your living trust at a greater cost.

If you are on the fence about whether a living trust is appropriate for you, schedule a consultation with an attorney at Betham Law, PLLC and we will guide you through the process. For legal advice relating to your estate planning matters or revisiting your will, please contact Betham Law, PLLC to schedule a consultation today.