A living trust is a valuable financial and estate planning tool. Established during the trust-maker’s lifetime, it can protect assets from lawsuits, document the trust-maker’s intentions, and keep private finances out of the public’s eye.#1: A living trust is too expensive.
It is true that a professionally-drafted living trust can be more expensive than a simple Will.
However, once you consider the costs of probate, a conservatorship in the event that you are incapacitated, or a guardianship for a minor child, the investment in a trust document can begin to make financial sense. Be sure that you are comparing apples to apples, and don’t make your decision based on document drafting costs alone.
Some people may worry about other expenses that can come with a trust, such as trustee fees. It is true that an independent trustee usually receives a fee for managing the trust. However, during your lifetime you can be your own trustee, which wouldn’t call for any fees. Family members and friends don’t typically get paid for administering a living trust either. Even if your situation calls for a trustee outside of family members, the fee is usually a small percentage of the assets inside the trust.
#2: I don’t own that much. A living trust would be overkill.
In the past, trusts were mostly used by wealthy families who needed special tax planning. That’s what has created a wide-spread perception that trusts are just for the ultra-rich folks.
Today, living trusts have demonstrated their usefulness for estates of all sizes. Whether you want to provide for a special-needs child, be prepared for the possibility of incapacity, or simply want to save your family from the hassle of going through probate, a living trust may be the tool to consider.
#3: A living trust would sure help my heirs, but it does no
good for me.
People don’t like to think about their eventual death, but one thing they hate even more is thinking about the possibility of being incapacitated. Incapacity could result from dementia, a stroke, a heart attack, or an accidental injury.
If that were to happen to you or someone in your family, a pre-established living trust can become a safety net.
Some people mistakenly believe that their Will can help in this situation, which is not true. A Will only dictates how things are handled after you die. Owning property jointly with your spouse or partner won’t help either, because selling certain assets (such as real estate) often requires all owners to sign the documents. If you want to have a say in how your assets should be managed if you are unable to do it for yourself, look in the direction of a living trust.
#4: I will have to deal with the hassle of filing a separate set
of tax returns.
In the case of a revocable living trust (i.e., a trust that could be un-done at any time), the IRS considers it a non-event. So, you can continue to file taxes under your own Social Security number. If the grantor is the trustee, everything is reported on the grantor’s individual tax return. If your trust continues after you die, then the IRS will assign it a separate tax ID.
# 5: I will have to give up control.
With a revocable living trust, and for as long as you act as your own trustee, you can do anything with trust assets that you could have done before you had placed them in a trust. You can invest the money, rent or sell a house, buy another house with the proceeds, change the trust, or even cancel the trust.
Even if you appoint another person as trustee, they must act under your direction and follow the rules of the trust. You decide when your loved ones will get their inheritance. All the while, the assets can be protected from creditors, poor spending habits, and even divorce. In other words, a properly established living trust can give you a considerable amount of control — not take it away.
Does my family need a living trust?
The only way to know for sure is to work with an experienced attorney. There are many legal instruments that can help you accomplish your goals and document your wishes. An attorney can explain the pros and the cons of each one, walk you through what costs you should expect, and help you draft the documents.
The most important thing to remember is that it’s better to get the facts from a trusted professional. Trusts are notoriously complex. Their tax consequences can be extensive, and a careless mistake can un-do hours of painstaking planning and drafting.