If you understand what a living trust can and cannot do, it may be an useful estate planning instrument.
Living trusts may be one of the most misunderstood estate planning strategies, owing to a number of widespread misconceptions about them.
We’ll look at what a living trust is, some living trust essentials, and why a living trust can be a good addition to your estate plan.
Table of Contents
What Are the Advantages of Creating a Living Trust?
A living trust, also known as a revocable living trust or living revocable trust, enables the person who creates the trust (the grantor) to have control of the trust property until death. The trust is subsequently handed over to the successor trustee, who was chosen by the grantor, to distribute the trust property in accordance with the grantor’s instructions.
There are various advantages to adding a living trust in your estate plan, including the fact that the trust frequently allows the assets held inside it to bypass probate, allowing for a quick, straightforward transfer to your heirs without extra charges.
A living trust protects your privacy since its provisions are kept private, as opposed to a last will and testament, the contents of which become public after the testator’s death.
Finally, a revocable trust is so named because the grantor may amend it at any moment throughout his or her lifetime. A trust that is irreversible, on the other hand, cannot.
Now let’s address five common misconceptions regarding living trusts.
Myth 1: “Only the rich use living trusts.”
This is arguably the most commonly held living trust myth, and as you would expect, it couldn’t be farther from the reality.
Yes, many affluent individuals establish trusts—do thoughts of “trust fund babies” dance through your mind? However, this does not imply that trusts are just for the wealthy.
However, many persons with typical salaries believe that the advantages of a living trust, as mentioned above, make them a good option for estate planning.
Myth 2: is that “living trusts exclusively benefit beneficiaries, not grantors.”
While many individuals set up living trusts mainly to ensure that the trust property is distributed to their heirs as promptly and simply as possible after their death, a living trust may also make it simpler to manage the grantor’s affairs if he or she becomes disabled.
In such a case, having a living trust in place may make things lot less stressful and time-consuming for loved ones left to handle your affairs while you are unable to.
Myth 3: “Grantors cannot access monies after they are placed in a living trust.”
This misconception disregards the “living” component of the living trust. The fact is that the cash and assets in a living trust may be made as accessible as you want them to be—to you or to anyone you choose.
As a result, if you want to utilise the trust largely for your benefit, you might designate everything in it as being available to you until your death. You may, on the other hand, make the money unavailable to people you don’t want to be able to utilise throughout your lifetime.
Myth 4: “Living trusts never go through probate.”
With one important exception, the assets housed inside a trust will normally avoid probate, which is a fantastic incentive to make sure you have skilled specialists helping you set up your trust. If there are assets that were not included in the trust, they must still go through the ordinary probate procedure.
This is why it is critical that your trust be completely funded—with all of the assets you desire to pass on—in order to fully benefit from probate avoidance.
Myth 5: “Creating a living trust is difficult and/or costly.”
Using online living trust forms, you may quickly establish a living trust. You may also have the paperwork drawn up by a skilled estate planning attorney or another legal practitioner.
Setting up a trust may cost more upfront than merely making a final will and testament, but the cost savings afterwards and additional advantages of creating a living trust may more than offset those costs.
Preparing to Create a Living Trust
If you’re ready to go ahead now that you’ve learned all there is to know about living trusts, you can make the process go even more easily by considering the following:
The assets that you want to include in the trust
Who do you want to inherit your assets if you die?
Nominating a replacement trustee
It’s worth noting that if there are minor children who will inherit via the trust, you may choose someone to administer the assets for them until they reach the age of majority.