Trusts are often misunderstood beasts, either underappreciated, or greatly feared. This post should put your mind at ease, and reveal the soft warm lovable creatures revocable trusts actually are. Revocable or living trusts is the most common type of trust. There are many other kinds of trusts that meet special and unique goals. Today though, we’re going to look at the revocable trusts, and dispense with the top ten myths about them.
10. You Lose Control With a Revocable Trust
Fact: You actually gain control with a revocable living trust. With a trust you’ve laid out exactly who your heirs will be, and who will take over for you in case of incapacity. Revocable trusts keep all the control with the person or couple who created the trust. ‘Revocable’ means you can change the entire thing, or get rid of the entire thing at any time if you choose.
9. Revocable Trusts Are Only For Rich People
Fact: Probate is for anyone with an estate over $150,000. And probate is an expensive, time consuming process. The revocable trust is the perfect prescription to avoid probate entirely.
8. A Revocable Trust Always Avoids Probate
Fact: Property properly placed inside a trust avoids probate. That is why your attorney should spend just as much time working with you funding your trust, and it should be something you keep a close eye on as well. Opening a new bank account? Buying a new piece of property? Refinancing an existing piece of property? Title those assets in the name of your trust, and you’re set.
7. Revocable Trusts Keep You From Paying Income Tax
Fact: There are charlatans and fakes who are more than happy to sell you this line of malarkey. The reality is revocable trusts are invisible for income tax purposes – when you create your revocable trust you continue paying your taxes just as before. Run, don’t walk away from anyone trying to sell you on trusts as a way to never pay taxes again.
6. A Revocable Trust Keeps Your Heirs From Paying Estate Tax
Fact: There are special trusts designed to reduce the size of your estate. Your revocable living trust is not that trust. The good news is that with the estate tax exclusion amount set to $5.34 million in 2014, and adjusting for inflation each year, the rest of us with estates smaller than that don’t have to worry about exposure to estate tax.
5. Revocable Trusts Are Expensive
Fact: It is true that trusts cost more than a will, but they are still surprisingly affordable. And when you compare the cost of probate to your heirs, the very real savings in time and money make a living trust the easy choice.
4. My Revocable Trust From The Last Decade Has Me Covered
Fact: Laws change, and families change. You should review your trust regularly to make sure the beneficiaries and successor trustees you chose when your trust was created are still the people you would choose today. You should also review to make sure your trust is properly funded. Finally, your incapacity documents (your Health Care Directive and your Power of Attorney) can become stale just sitting on your shelf. If you haven’t updated them recently, now is a good time. The Health Care Directive in particular has seen a number of changes in the law over the last several years, making older one’s ineffective.
3. A Revocable Trust Protects You From Creditors
Fact: Your revocable living trust is just as invisible to creditors as it is the IRS. Asset protection planning looks at using retirement plans, limited liability companies, irrevocable trusts, and other strategies to reduce your exposure to lawsuits and creditors.
2. A Revocable Trust Eliminates All The Work For The Heirs
Fact: There is still a lot of work to be done to transfer assets from the estate to the heirs. The difference with a trust is that your successor trustee isn’t waiting for a court order, they step in immediately. They’re also not waiting for court approval to take necessary actions, like selling the property.
1. Revocable Trusts Are For Everyone, And Can Solve All Your Problems
Fact: Revocable trusts are very useful for a lot of people, but that doesn’t mean they’re perfect for everyone and every situation. A conversation with your estate planning attorney will help you determine what is best for you and your family.