Living Trust Myths Debunked

Published January 27th, 2024 by Steve Stanganelli CFP

What are the benefits of a living trust? Should you consider adding a living trust to your estate plan and why? Let's explore how a living trust can help you and your family. Read on to see how living trust myths are debunked.

What is a Living Trust?

A living trust is established as part of your estate plan to be the owner of record for your assets. It allows you to retain control over the trust property until death. When you pass away, the trust is turned over to the successor trustee, who is chosen by you, to distribute the trust property according to your wishes.

By setting up a living trust, you'll find that your estate avoids probate of your assets. This results in faster, easier distribution to your beneficiaries without additional costs. You'll also maintain your privacy because trust provisions stay confidential.

This is in sharp contrast to a last will and testament, which becomes a matter of public record that has to go through the court probate process. Finally, you can change a revocable trust at any time during your lifetime. Revocable living trusts are used to protect property until your beneficiary is mature enough to make wise decisions about his or her inheritance.

Myth No. 1: Living trusts are only for the wealthy. While many wealthy people set up trusts, it doesn't mean that this option is only for the rich. Many people with average incomes find living trusts to be beneficial. Whether or not you have millions in investments, you'll probably benefit from a living trust since it will provide easier control of the distribution of your assets after your death while protecting your privacy.

Myth No. 2: Living trusts benefit only beneficiaries, not the people making the trusts and not you, the grantor. In fact, a trust can allow for easier handling of your affairs should you become incapacitated, and make things much less stressful for loved ones left to care for your affairs when you're unable to do so.

Myth No. 3: You can't access funds once they're in a living trust. This ignores the "living" part of the living trust. Funds and assets can be made as accessible as you wish, to you or to whomever you desire. If you want the trust primarily for your own benefit, you can set it up so that everything is accessible to you until your death. In addition, you can make sure the funds do not end up with those you don't want to get them. Aside from changing the title on your accounts or real estate to reflect the transfer from you to the living trust, you can operate your financial affairs as you did prior to setting it up.

Myth No. 4: Creating a living trust is complicated and expensive. Not true. Setting up a trust may cost a bit more up front than simply writing a last will and testament, but the cost savings later on can make up for these expenses in the long run. Why? The probate process can cost anywhere from 2% to 5% of the value of an estate. Setting up a living trust now avoids paying that cost later. Through the power of technology and a nationwide network of attorneys, a living trust package with a complete set of related documents like a health care proxy, durable power of attorney, and pour-over will can cost as little as $650 for a married couple. For more information, you can check out the Estate Plan Navigator program that we use with clients here.

Myth No. 5: Even if you have young children, a will can do anything a trust can. A living trust can do some things a will cannot easily accomplish, and can become a vital part of your estate plan. It allows you to give your hard-earned money and property to those you care about while protecting it for them. If you have beneficiaries who are not quite able to handle large sums of money on their own, for example, then a revocable living trust is a necessary component of your estate planning. Your beneficiary may not be mature enough to handle large sums of money. This can be handled by implementing rules on how, when, and under what circumstances distributions may be made. For instance, the living trust can specify that your chosen trustee can make distributions to support the health or education of a minor beneficiary. Or if you're worried about a beneficiary unwisely spending their inheritance or of the adverse impact of an addiction, you can specify for the trustee to release money at certain ages or after proof of being in recovery and addiction-free for a period.

Some people are spendthrifts, others are in not-so-good marriages and still others are going through bankruptcy. Then there are those who are just too frail and incapacitated to manage property on their own. You'd rather not be giving money or property to someone under these conditions. That's when a living trust can be relied on.

Hopefully, you can see that the common living trust myths are debunked.

Is a trust right for you? Is the Estate Plan Navigator program the best choice for your family? We can help you decide.