Five Myths About Revocable Trusts
After some careful thought, you’ve decided to get serious about Estate Planning. You’ve heard some things about revocable trusts, but you have some questions. You think about talking to your brother-in-law to get his advice. After all, he’s always been the responsible one in the family and you value his opinion. However, there are many myths out there about revocable trusts, and perhaps a better option is to talk to a professional instead of your brother-in-law. Here are some common myths about revocable trusts your brother-in-law may not be aware of.
Myth 1: The main purpose of a revocable trust is to avoid paying Estate Taxes. Not true. While minimizing estate tax may be one goal of a revocable trust, the fact of the matter is that only a very small fraction of Californians will owe estate taxes upon death. Under current law, California has no estate tax and the current Federal estate tax exemption is $11.4 million per individual. So, unless you fall into the category of the “rich and famous”, estate tax minimization is not the main purpose of a revocable trust. The main purpose of a revocable trust, for most of us, is to streamline the distribution of our assets upon our death by avoiding a court administered probate proceeding.
Myth 2: By creating a revocable living trust, I lose control of my assets during my lifetime. Certainly not true. The key words here are “revocable” and “living”. A typical revocable trust is created by an individual or couple (known as the Settlors) and appoints themselves as the initial trustees. The trust is normally written to allow them to administer the assets for their own benefit throughout their joint lifetimes. They have total control to buy, sell, borrow upon, etc. assets in the trust. They even have the power to revoke the trust during their lifetimes. Therefore, the assets are in their complete control.
Myth 3: By creating a revocable trust, I can shield my assets from my creditors. No, that is not true. Because the trust is revocable and controllable by the Settlors of the trust, California law does not protect trust assets from the Settlors’ creditors. However, trust provisions can be written to protect the trust assets from the creditors of the beneficiaries of the trust (that is, those that will receive distributions from the trust after the death of the Settlor(s)). These provisions are known as “Spendthrift Provisions” and are a powerful tool that can protect you lifetime’s earnings from being siphoned away by one beneficiary’s creditors.
Myth 4: Trusts are only useful after the death of the creator of the trust. Not necessarily. By creating a trust with a successor trustee(s), along with a durable power of attorney, one creates a seamless way to manage assets or make vital decisions in the event of incapacity. As one example, this may be very important for business owners that become incapacitated. Upon incapacitation, the successor trustee that you have designated can be empowered to make vital business decisions to keep your business going. So, unlike wills that only become effective upon death, a living trust has powers that are exercisable during life.
Myth 5: Trusts are expensive to create. To answer that, one must ask, “Compared to what?” Generally, an estate plan that contains a living trust, along with other vital documents, will cost
more than a simple will --- but, as noted above, a trust can be much more powerful. Most estate planning attorneys will quote a flat fee for an estate plan that includes a trust and other documents that will protect your interests during your lifetime and after death. The cost may depend upon your particular circumstances and the complexity of the estate plan. But, compared to attorney’s fees for administration of a probate estate, the fees to create a trust that will likely avoid probate are generally less.
If you are wondering if an estate plan that involves a revocable living trust is right for you, contact me at email@example.com for a free consultation.
Please note, this article is intended to provide “legal information” and does not constitute “legal advice”.