Five trust myths

Hardly a day goes by where a client does not tell me that they need a trust.  

 

• Okay. So everybody needs a trust? Some people have assets totally in joint accounts with their children. These assets will pass outright to your children upon your death without the need for probate. However, your children then receive the funds outright and the assets are subject to their creditors, former spouses, etc. If this is not your intended or desired result, then a trust may be appropriate. In such a case, funds could be held for the benefit of your children with an allocation of specified amounts or percentages being distributed at various ages.
• A trust will save taxes. Just because assets are in a trust, that doesn’t necessarily eliminate or save estate taxes. If the trust is a revocable trust, your still own all the assets, and all income received from assets in the trust will be taxed to you at your own income tax bracket. Likewise, all assets will be includable in your estate for estate tax purposes. Therefore, although the assets will not pass through probate, they are subject to all Estate Taxes.
  
• All trusts are not probated. This usually is the case, but it is important to coordinate the ownership of assets put in the trust. For instance, if you own a house and have a trust, but you maintain the property in your own name, then the assets must pass through the probate proceedings in order to get into the trust. If a deed is drafted, signed, and recorded before date of death, then this asset will not pass through probate, but rather, will be held in the trust to be administered and distributed in accordance with the terms of the trust.
  
• All trusts are the same. This is certainly not the case, as the need for different distribution requirements in each trust may be based on the family needs for money, status of your children and grandchildren, etc. Each trust should be individually drafted, and although much of the language may be required or standard, the essence of the trust is such that it must be changed in order to comport to the wishes of your family.
  
• A trust will avoid prevent funding a stay in a long term care facility. Unless the trust is irrevocable, and has been funded five-years prior to your institutionalization on a permanent basis, the funds in the trust are subject to be spent on your care. Likewise, in the event that the trustee has any discretion to utilize the funds to or for the benefit of the beneficiary, (you,)who may be institutionalized, then those funds are also deemed to be available to be spent and used for your care.

In listening to Suze Ormond, it was interesting to learn that she felt that most people will or should need a trust. This is not the situation in every case, even though there are many different types of trusts that serve a family well in obtaining maximum tax benefits, avoiding probate, and minimizing fees.

By: Hyman G. Darling, Esq.

Comments

[Will]

Great Article and Great Blog, we have the same problem with peoples desires for trusts in the Uk, but I think people are a little more weiry of them over here than in the US.