Even though trusts have become more and more common over the past couple of decades, there is still a certain mystery surrounding trusts and myths that have persisted. With this blog post, I wish to discuss and bust three such myths.
Myth No. 1: Only the wealthy have trusts.
This is simply not correct. While the wealthy do have trusts as part of their estate planning, the middle class has also utilized trusts more and more as their primary estate planning tool. Trusts have several benefits, including avoiding probate, protecting assets from an heir’s creditors, and even administering assets in the event of incapacity. Creditor protection and avoiding probate are not just benefits that are limited to the rich.
Myth No. 2: You can hide money or avoid taxes with trusts.
Your typical estate planning trust is a revocable living trust. As such, the revocable trust is what is referred to as a grantor trust for income tax purposes. This means that income received by the trust passes through to the person that created the trust, the “Trustor,” and is picked up on his or her income tax return. Also, as a revocable trust, such does not provide protection from the Trustor’s creditors. If you, as the Trustor, have full access to the trust assets, so do your creditors.
Myth No. 3: Your beneficiaries will become “trust babies.”
Popular media likes to portray trust beneficiaries as spoiled, lazy trust babies. While leaving too much money to beneficiaries can certainly act as a disincentive for them to be productive, I have generally not found this to be the case. And if you have children or grandchildren that you feel may be susceptible to becoming “trust babies,” you can include certain qualifications or incentives into the trust that will promote socially productive behavior. In fact, using a continuing trust rather than simply leaving the assets directly to the child will allow you greater flexibility in creating such incentives.
With the increased popularity of trusts, it is important to understand what they can be used for and what they are not capable of doing. Engaging an experienced trust attorney to assist with creating and funding the trust is an important step in securing how you desire your estate to pass to your heirs