People sometimes hear bits and pieces about certain aspects of the estate planning process. They let this limited information guide their thinking, and this can lead to mistakes that negatively impact their loved ones.
With this in mind, let’s look at some myths that circulate about trusts.
A will is a better choice than a trust unless you are a multimillionaire.
This may be the most commonly held misconception, and if you have been under this impression, you would do well to put it behind you.
It is absolutely true that high net worth individuals use trusts to gain estate tax efficiency. However, there are many different types of trust, and some of them would not be helpful for people that have concerns about estate taxes.
Folks of relatively ordinary means can definitely benefit from the utilization of a trust, and there are drawbacks that go along with the utilization of a will.
The executor that is named in a will would not be able to act independently. Under the laws of the state of California, the will would be admitted to probate, and the court would provide supervision during the administration process.
No inheritances can be distributed while the estate is being probated. This will take anywhere from nine months to a year or a year and a half, even if there are no complications.
Another drawback is the cost factor. There are legal fees, accounting charges, court costs, the executor’s payment, and charges for liquidations and appraisals. The executor will also incur certain incidental expenses, and all of this money is coming out of the pockets of the inheritors.
If you were to use a revocable living trust instead of a will, the trustee would be able to distribute assets to the beneficiaries outside of probate.
You permanently lose control of assets that you convey into a trust.
The trusts that wealthy people with estate tax responsibilities use to gain tax efficiency are irrevocable trusts. This type of trust cannot be revoked as the name would indicate, and the grantor of the trust can’t act as the trustee or change the terms under most circumstances.
On the other hand, the dynamic is entirely different with a revocable living trust. If you establish this type of trust, you can be the trustee and the beneficiary throughout your life. You would have the same access to the resources that you have always had, so there is no loss of control.
It is expensive to establish a trust.
We have already explained some of the expenses that go along with the estate administration process if you use a will, and they are considerable. While it is true that you have to pay legal fees to work with an attorney to establish a trust, it is an investment that pays dividends.
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