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What are some myths regarding living trusts?

Living trusts are a great estate planning tool. However, it’s important to understand exactly how trusts are created, as well as what they can do, to ensure your needs are met. There’s a lot of misinformation surrounding living trusts, which The Balance attempts to dispel with the following information.

Can a trust help you avoid probate?

If a trust is not adequately funded your estate may still end up in probate. Funding the trust refers to retitling your assets, such as real estate, financial accounts, and life insurance proceeds, so they are owned by the trust. Any assets that are left out of this process will be subject to probate. Other situations can also lead to probate, such as issues with creditors pursuing a portion of the estate.

Are trusts only suitable for people with great wealth?

There are actually a number of reasons why a trust might make sense for you. For instance, owning property in two different states can greatly complicate a person’s estate. It may even lead to probate, and a properly created trust can reduce the risk of this occurring. You can also use a trust if you’d like to keep information about your estate private. Unlike wills, trusts do not become part of public record.

Do trusts reduce the amount of estate taxes?

In general, a trust will have no impact on the amount of estate taxes you owe. The only exception is an AB trust, which can be used by married couples to reduce the amount of taxes owed on their estate. Otherwise, you’ll be subjected to the laws in your state, which will determine just in taxes you owe on your estate.


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