When people think of basic estate planning, wills and trusts often come to mind. There are so many different types of wills and trusts that you may have a lot to consider before choosing your estate planning strategy. A living trust is one of many important components of a good estate plan. But there are many myths surrounding this particular estate planning tool. Kansas estate planning attorneys at Gaughan & Connealy are here to dispel some of the common myths about the living trust.
How the living trust is created
The process required for creating a revocable living trust is rather simple. The trust document will be drafted and will contain the terms under which the trust will operate. Once the trust document has been drafted and executed, the next step is to transfer all of the chosen trust property into the name of the trust. This is most commonly called “funding” the trust. Once the trust has been completely funded, the trust will be the new owner of all of the trust property.
Myth No. 1: Having a living trust requires relinquishing control over your property.
Most clients are under the misconception that, because the trust owns the property, they will lose all control over the trust property. That is only true with an irrevocable trust. A living trust is a revocable trust, which means you retain the ability to manage the trust as well as to use all of the property owned by the trust. Essentially, transferring property into a living trust does not mean you have to relinquish your control.
Myth No. 2: All I need is a living trust and nothing more
As valuable as living trusts may be, in most cases it is not the only estate planning tool you need. With all of the things a living trust can do, there are many other things it cannot. For example, living trusts do not give you the opportunity to appoint a guardian for minor children, if necessary. You need a will to do that.
A power of attorney may also be required
Something else that needs to be considered is whether you will need to create a durable power of attorney, along with your living trust. In order to maintain control over the trust while you are alive, you basically need to name yourself as the original trustee. The problem is, your successor trustee may not have the authority to manage any additional property that may not have been included in living trusts. For this reason, you will likely need a power of attorney, as well.
Myth No. 3: A revocable living trust can be used for asset protection
That fact that living trusts are revocable means it will not protect your assets from tax liability, creditors, or legal judgments. Irrevocable trusts, on the other hand, remove the assets from your estate permanently, so they are shielded from liability, but that is not the case with living trusts.
Myth No. 4: Living trusts won’t help you avoid probate
Avoiding probate is actually one of the main advantages of a living trust. Living trusts have many advantages, including saving time and expense of probate, avoiding the potential issues that may arise when with probate. There are also some tax advantages that come with a living trust, specifically that estate taxes are minimized when you transfer property to your living trust.
Myth No. 5: A Living trust is not legally enforceable
An important aspect of a living trust is that it can be legally enforced by the courts, if necessary. A living trust is a written, legally binding document so it provides certain legal protections that other less formal estate planning instruments may not. A living trust is always enforceable by the courts, so if there are any disputes or challenges to transfers of assets made pursuant to the trust, the court will enforce the terms of the trust document as written.
Living trusts are limited in coverage
One thing to remember is that living trusts are usually much more limited in coverage than a will, for example, which can contain a wide range of provisions that apply to many different assets. Living trusts typically refer only to specific property that has been transferred to the trust. For this reason, the language of a living trust must be as detailed as possible, when describing that property.
Join us for a free workshop! If you have questions regarding trusts, or any other estate planning matters, contact Gaughan & Connealy for a consultation either online or by calling us at (816) 974-3030.