Common Misconceptions About Trusts

Is a trust for me?

Here are some of the most common misconceptions about trusts:

§  Trusts are only for the wealthy… Trusts are not exclusively for the wealthy. In fact, the wealthy can afford a complex probate, but the less advantaged folks cannot. Trusts can be beneficial for individuals or families with varying financial backgrounds, because they offer advantages like avoiding probate, maintaining privacy, and ensuring assets are distributed according to one's wishes without the cost of a probate matter.

§  Trusts eliminate the need for a will… While trusts are important estate planning tools and essentially supersede a will, having one for “backup” is still essential. A will addresses any assets that were deliberately or accidentally not included in the trust. They can also replace a trust and all the essentials within it if something should cause the trust to be unworkable in the future- like legislative action, for instance.

§  Trusts always avoid probate… Many trusts are designed to avoid probate, which is a court-supervised process for distributing assets. However, a poorly drafted trust or improper or incomplete funding (putting assets into the trust) may still require probate.

§  Once a trust is created, it cannot be changed… Revocable living trusts can be modified or revoked during the grantor's lifetime. Irrevocable trusts can also be changed through a TEDRA which requires the agreement of all beneficiaries or a court order.

§  Trusts are complicated and expensive… It is true that setting up a trust requires careful planning, but the cost benefit, such as streamlined asset distribution and minimized court involvement, often outweighs the initial expenditure. While creating a trust with an attorney may be more expensive than drafting a will, it can save money and time in the future if done properly.

§  Trusts lead to a loss of control over assets… This depends on the type of trust. With a revocable living trust, the grantor retains control and can even serve as trustee. They can make changes and even dissolve the trust if needed. Certain irrevocable or asset protection type trusts can require a separation of assets from the trustmaker, but this can be controlled by competent legal counsel. Trying to accomplish this with a cookie-cutter online solution is a dangerous and slippery slope.

§  Trusts are only for avoiding taxes… While some trusts are designed to reduce estate taxes, this is not their sole purpose. Trusts can also be used for asset management, protecting family or generational wealth, ensuring controlled distribution of assets, and achieving other specific financial goals such as appointing guardians, etc.

§  A trust immediately protects assets from creditors… Not all trusts offer creditor protection. Revocable trusts, for instance, generally do not shield assets from creditors during the grantor's lifetime. Asset protection depends on the specific type of trust and how it is structured and drafted.

§  Trusts are only for the elderly… Trusts can be beneficial for individuals at all stages of life. Parents of young children can use trusts to provide for their children's care, and business owners can utilize them for succession planning. Trusts can also serve as a repository or framework for building wealth.

§  A trust controls all my assets… This is a critical point. Assets must be formally transferred into the trust (retitled or assigned) to be governed by its terms. Failing to “fund” the trust properly is a common mistake that can negate its intended benefits.

§  Choosing a family member as a trustee is always the best option… Well-intentioned family members may lack the necessary financial skills or time to effectively manage a trust. Family members who are not trustworthy can create highly volatile crises that may lead to criminal or civil lawsuits. A professional or corporate trustee may be a better choice in certain circumstances.

Curry Andrews, Attorney