When it comes to estate planning, you will learn all about trusts and how useful they can be in the estate planning process. However, while your lawyer will explain much about what the different trusts are and how they work, you may form your own ideas about what they can and can’t do. When it comes to revocable trusts, it is important that you understand these common misconceptions.
Myth: Revocable Trusts Eliminate a Need for a Will and Probate
The reason why most believe a trust negates the need for a will is that they will need to transfer the majority of their assets into the trust, which will handle parceling them out. However, most people will die with outsets that never were placed into the Trust. When there are assets outside of the Trust, those assets will need to be passed under your Will. While trusts do limit probate, trusts that are not fully funded with all of your assets prior to death will still need to go through probate.
Myth: Revocable Trusts Reduce Tax Liability
When it comes to taxes, revocable trusts are subject to income and estate taxes in the same way that your assets would be subject to estate and income taxes if they were not held in trust. Many people commonly misbelieve that having a revocable trust at death will help to eliminate taxes, but in reality, a revocable trust provides no tax benefits.
Myth: Revocable Trusts are Protected From Lawsuits
While you are alive, a revocable trust does not provide any protection from your creditors. However, upon your death, the trust will become irrevocable for the benefit of your heirs, and you can include provisions in the trust that will protect the assets you leave for your heirs from paying your heirs’ creditors. This provision is called a “spendthrift” provision, and inclusion of the provision makes the trust a spendthrift trust at your death. The spendthrift trust will protect assets from your heirs’ creditors.
If you have any more questions on trusts, revocable or otherwise, contact us today.