There have been many claims in advertisements and websites touting the benefits of a living trust. While a living trust is certainly a powerful estate planning tool, it may not live up to some of the claims that are being made by some advertisements. We reveal the fact vs. fiction of living trusts.
Myth: A living trust avoids estate taxes.
Fact: A living trust avoids probate, but not estate taxes. The property held by a living trust is included in the taxable estate of the deceased, but it does not have to go through probate, the legal process that administers the estate of a deceased.
Myth: Every estate should have a living trust.
Fact: Many estates may benefit from a living trust, but like any estate planning tool, there is no ‘perfect’ tool that helps every estate. More modest estates may not realize enough benefits from a living trust to offset the cost of setting one up, and they may benefit from simpler tools, such as a durable power of attorney.
Myth: A living trust takes the place of a will.
Fact: While a living trust can be considered a will substitute, an estate planned with a living trust will still need a will to name a guardian for minor children, name an executor of the estate and handle any property not held by the trust.
Myth: You must hire a trustee to manage a living trust.
Fact: You may act as the trustee of your living trust during your lifetime. You may also hire a professional trustee to manage the trust during your lifetime or after you pass. You may also appoint a trusted friend or relative to act as a trustee at any point. The trustee does not have to be a professional, in fact, the trustee may hire a professional to give legal or financial advice should it be necessary.