3 Common Misconceptions about Living Trusts

3 Common Misconceptions about Living Trusts

 

We receive information from so many sources today. Sometimes it’s from TV, magazine and newspapers. But many times it’s from the internet, just looking through your feed on facebook, twitter, and instagram. There are a lot of myths about living trusts that people think to be true, just because they read it in facebook. But it’s important to separate fact from fiction. Consider the source of the information. If you are relying on your buddy who tells you this information, and he is not a lawyer, I would think twice. Or perhaps he is a lawyer, but concentrates on divorce or immigration law. Once again, I’d think twice about the information you are given.

 

There are three common myths:

 

  1. You have to give up control of your assets that are in a living trust. This is not true. You are always the owner and user of all assets in a trust. In fact while you are alive, you are also the person who can change any of the provisions in the Trust. Through the years, you may update it 5-6 times based on the evolution of your family situation and your assets. But through it all, you have the right to control, invest, manage and spend every last dollar in your trust.

 

  1. You avoid estate taxes with a Living Trust. This is also not necessarily true. A Trust provides you the opportunity to either reduce or eliminate estate tax liability, but there are a lot of factors involved. If your estate is greater than the Federal and State exemptions, just by having the Trust, does not avoid taxation. However, you should always review your trust and your assets with your attorney on a continuous basis, to make sure you are taking advantage of all tax laws, and implement any strategies that may help eliminate the tax burden. For instance, if you give away your IRA to a charity, did you know that 100% will go to that charity, without paying any income tax, or estate tax? Depending on the size of your estate, this could be a significant savings. Another way is to create a Family Foundation. If you have a taxable estate, you have an opportunity to gift to a foundation that will carry out your charitable legacy for many generations.

 

  1. The last myth is that some people think that a Living Trust is the only estate planning document they need. This is clearly not true. You have to plan for many other circumstances other than death. You must plan for a possible disability. Therefore if that does happen, you should choose people that will make decisions for you both for money situations and health. Otherwise your family will have to go through a guardianship proceeding which may cost thousands of dollars through the years. Another important document that goes in tandem with a Trust is a Pour Over Will. You would need this for any other assets that are not in trust, will get “poured over” to the Trust. That way your wishes will he carried out. So the important lesson to learn is to go to a qualified trust administration lawyer in Schaumburg, IL and get a comprehensive plan in place. Not a piecemeal plan with only one document. Otherwise your family will be left to handle everything about you in front of a Judge.

 

Thanks to Bott & Associates for their insight into estate planning and living trusts.

 

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