Ending 3 Common Myths About Revocable Trusts

There are many myths about trusts including what they are for and who should use them. Most commonly, it is believed that trusts are only for wealthy individuals or families. This misconception results in too many people missing out on the many benefits of revocable trust planning including probate avoidance, privacy, and creditor protection for their beneficiaries. In addition to this myth, this post explores three other common myths about revocable trusts and the benefits that they can or cannot provide.

Myth #1: Taxes 

Many people choose to use specific estate planning tools because of the tax advantages they offer. For our first myth, people believe that revocable trusts give the grantor tax advantages. However, this is untrue. For legal purposes, grantors (the people who create and fund the trust) are not separate entities from the trust. In other words, the IRS treats the property and assets held inside the revocable trust as if they still belong to the grantor. That is why they will not help you save money on income taxes or estate taxes. Tax planning can be achieved, however, through irrevocable trust planning. 

Myth #2: Creditor Protection 

There are many different types of trusts. You may have heard that if you establish a trust, it will give you added creditor protections. Unfortunately, the grantor does not obtain creditor protections by transferring assets to a revocable trust. This type of protection can only be achieved if the assets are transferred to an irrevocable trust where the grantor loses control over the asset. However, a revocable trust does provide creditor protection to the grantor’s beneficiaries. 

Myth #3: Funding the Trust

This last one is important. Don’t assume that when you create a revocable trust, your assets automatically flow into it. You will have to properly fund the trust to ensure that it is used to its fullest potential. Despite having established the revocable trust, you are still required to fund your trust. This can be done during your lifetime by changing the title to an asset to name the Trustee of the trust as the owner or upon your death by naming the Trustee of the trust as the beneficiary of the asset. Be careful when modifying title to an asset during your lifetime as not all assets may be titled to the trust while you are living. 

If you have another person named as beneficiary of an account or if your asset is jointly titled with someone else, upon your death, the beneficiary designation or the titling of the asset will trump your wishes noted in the trust. Therefore, proper funding of your trust is a critical step in executing a proper estate plan.

Select Law Partners, PLLC

Despite these myths, a Revocable Living Trust is a powerful estate planning tool. We tell our clients that it is superior to a will because, among other benefits, it avoids probate, allows your beneficiaries immediate access to your assets and funds, and provides your estate privacy. To learn more about how a revocable trust can benefit you and your family, contact Select Law Partners, PLLC, to schedule a consultation.

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Sara Josey

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