When most 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 strategies. 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. This article will discuss some of the common myths about establishing a trust.
How a living trust is created
The process required for establishing a trust is rather simple. The trust documents will be drafted and will contain the terms under which the trust will operate. Once the trust documents have 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.
Having a living trust does not mean relinquishing control over your property
Most people 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.
You may need more than just a living trust
As valuable as a living trust may be, in most cases it is not the only estate planning tool you need. Despite all of the things a living trust can do, there are many other things it cannot. For example, a living trust does 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 the living trust. For this reason, you will likely need a power of attorney, as well.
Revocable living trusts are not good for asset protection
That fact that a living trust is 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 a living trust.
Establishing a trust can help avoid probate
Avoiding probate is actually one of the main advantages of a living trust. Living trusts have many advantages, including saving time and the expense of probate, as well as avoiding other potential issues that may arise 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.
A Living trust is 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 asset made pursuant to the trust, the court will enforce the terms of the trust document, as written.
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