There are many different estate-planning tools out there to help you preserve your assets for your heirs in the years to come. Many have opted to use a “Do-it-Yourself Trust Kit” only to find this cookie cutter approach can be full of legal loopholes. As we discuss on page 50 of our book Champions: Knockout Strategies for Health, Wealth and Success, even though an attorney may seem more expensive at first, this is one of the areas that it is usually better to spend a little more money and hire the assistance of a professional.
A living trust is a type of trust that takes effect during the grantor’s life. One can choose to use a living trust for many reasons, but it is important that you know some of the facts behind these trusts before you add one to your estate plan.
Claim #1: Living trusts protect your assets from the hassle, delay, and cost of probate proceedings.
- Fact #1: While this is, for the most part, true, these particular benefits don’t necessarily put living trusts above all other trusts and wills, because too many assets are already shielded from probate proceedings by default. For example, property that is owned jointly with the right of survivorship automatically belongs to the survivor. In addition, pension, IRA, Keogh plan benefits, and life insurance death benefits are paid to the named beneficiary without going through probate, as well as government bonds and bank accounts that list a POD beneficiary.
Claim #2: You can save money by having a living trust rather than a will you have to run through probate.
- Fact #2: Although there may be some cases where this is true, oftentimes opting for a living trust will still have its related costs. It is still a good idea to have a will in addition to a living trust, because the will can hold all of the assets that were not included in the trust initially or haven’t been added as they’ve been acquired. You should have at least a simple will that “pours over” to your living trust any assets you have left out. This will ensure that your assets are dealt with according to your instruction rather than being left to the state’s intestacy rules.
Claim #3: Assets will be distributed to your heirs much faster through a living trust than through a will that has to go through probate.
- Fact #3: If you have complicated assets that require a lot of management, then this might be true. However, if your estate is uncomplicated and your will doesn’t create a post death trust, then the distribution process shouldn’t be much different for either a trust or a will. On the other hand, if you have a complicated estate that requires some federal estate-tax planning, a living trust may save you both time and money. This will probably require the services of an attorney and accountant, but may be well worth it.
Claim #4: You will save on taxes with a revocable living trust.
- Fact #4: According to Kiplinger.com, “No you won’t. During your lifetime, there are no income-tax savings attributable to earnings of the trust. Because you retain total control over the assets and can revoke the trust anytime you want, you are taxed on all the income (on your personal tax return if you are the trustee.)”
If you would like help talking through your estate planning needs, give us a call and we’ll answer as many of your questions as we can. We’d also be happy to give you the names of a few of the attorneys we have partnered with. Any one of them will do an excellent job of tailoring a trust that meets to your specific needs.