A living trust is a particularly useful estate planning tool and should be included in every estate plan. However, before you take that step, there are a few common myths regarding living trusts of which you should be aware. This article will debunk the 3 most common myths. For a complete understanding of how this estate planning tool can benefit you, discuss your options with your Los Angeles estate planning attorney.
Myth No. 1: You have to give up control of your property when you create a living trust
While it is true that creating a trust means that trust will become the legal owner of the property you place in trust. A common misconception is that you must relinquish all control over that property once it is transferred to the trust. That is not true. One of the greatest benefits of a living trust is that it is revocable. That means you will retain the ability to make any changes to the trust and the trust property at any time during your lifetime. It also means that you also have the authority to manage the trust and use all of the property owned by your trust.
Myth No. 2: Living trusts allow you to avoid estate taxes
This is a common misconception. In reality, revocable living trusts do not help to avoid estate tax liability because they are revocable. For this same reason, living trusts do not provide asset protection. That is because the revocable nature of a living trust essentially means the assets are not permanently removed from your estate. If you need asset protection or estate tax relief, you should discuss an irrevocable trust with your estate planning attorney.
Myth No. 3: With a living trust you won’t need any other estate planning tools.
Despite all of its valuable characteristics, a living trust cannot accomplish everything you need for a comprehensive estate plan. For example, living trusts do not allow you to name an executor or guardian for your minor children. To accomplish those tasks, you also need a last will and testament.
The basic steps in creating a living trust
Now that you know the truth about living trusts, there are just a few straightforward steps required to create a revocable living trust. Your estate planning attorney will initially meet with you to determine what your particular needs are. From this, your attorney will draft the trust document which contains all of the terms of the trust. That is the instructions for the trustee to follow. After drafting the trust document, the property must be transferred or “funded” into the trust. It’s really that simple if you have the assistance of an experienced trust attorney.
Advantages and disadvantages of a living trust
The primary purpose most clients have for creating a living trust is to avoid the lengthy and costly probate process. But, before you decide whether a living trust is the right choice, you should consider both the advantages and disadvantages of creating a living trust. One major advantage is probate avoidance while a disadvantage is how limited a trust will usually be.
Living trusts provide probate avoidance
Living trusts often save time and expense in estate planning. There are also valuable tax advantages, as well. For instance, a living trust may decrease the amount of estate taxes owed by your estate. Also, because living trusts avoid probate, the terms of your trust document will remain private.
Living trusts also provide legal protection
Another advantage of a living trust is that it is legally enforceable in court. Unlike a last will and testament, which only describes how you want your property distributed, a living trust is a binding agreement between you and your trustee to perform certain tasks. This means that in the even someone challenges a transfer of assets made after your death, the court can easily enforce the terms of your trust document.
Living trusts are limited in coverage
One disadvantage to using a living trust is that is generally more limited in its coverage than a last will and testament. That is because a living trust refers only to specific property – the property that was funded to the trust.