Common Myths About Trusts

Trusts are generally utilized as part of estate planning. There are numerous types of trusts. One of the most common types of trusts is a revocable trust, which is sometimes referred to as a living trust. if it has been properly funded, a revocable trust operates during your lifetime and after your death. You, as the grantor and settlor of the trust, own any assets that have funded into your trust, you have control over your assets and you can amend the trust at any time during your lifetime. Another common type of trust is an irrevocable trust. Irrevocable trusts are most often times used when you want to remove an asset from your estate for estate tax purposes. If you want to remove an asset from your estate for estate tax purposes, you do not own the asset any longer and you do not have control over your assets.

One common myth is that a revocable trust does not have to pay any valid debts that you owe, such as credit cards, bank loans, mortgages, etc. A revocable trust does not extinguish your valid debts upon your death.

Another common myth is that revocable trusts can never be subject to the scrutiny of the courts. If there is a dispute regarding a revocable trust that dispute can be generally brought before the courts. In addition, some trustees routinely file revocable trusts with the courts so that the trustees actions are also approved by a judge. A dysfunctional family dynamic increases the likelihood that a trust will be subject to court scrutiny.

A common myth also includes that irrevocable trusts are a great way to shield assets from a creditor. An asset you place in an irrevocable trust means that asset is no longer subject to your creditor, but it also means that you no longer own that asset. However, if the purpose of moving that asset to an irrevocable trust was to shield it from a creditor does not mean that the creditor will not ask a court and a court will not undo the transaction on the basis of fraud.

Another common myth is that a revocable trust shields a disabled child’s inheritance from the reach of the government. However, a supplemental needs trust that is appropriately administered will accomplish that goal; a revocable trust will not.

Only the wealthy need trusts is also a common myth. Trusts can be advantageous to a cross section of people. The goals that you have, the type of assets that you own, your net worth, your philosophy about inheritance and the age or maturity that someone needs to have to inherit, the level of family dysfunction and whether someone is disabled and on government benefits are often major considerations in determining whether or not a trust is the right option for you.

Finally, a common myth is that you can modify an irrevocable trust. While there are exceptions to the general rule, the general rule is that irrevocable trusts cannot be modified. Therefore, once an irrevocable trust is established, most likely it is permanent and will not be able to be modified in the future.

Spangler and de Stefano, PLLP assists business owners and individuals with their estate planning.

The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.