Out of all the tools that are employed for estate planning, there is hardly any which is as widely misunderstood as living trusts. There are many myths that are floating around related to living trusts because of which people refrain from using this particular instrument of wealth distribution.
If you too have heard a negative point about living trusts it is possible that it is one of the many myths that have been accepted without question. Before you proceed with securing the future of your loved ones you should be given proper information relating to Living Trusts.
In this post we take you through what is a living trust, advantages of a living trust and also which are the common myths surrounding Living Trusts:
What is a Living Trust?
A living trust makes it possible for the testator to give a trustee complete control over the estate after his or her death. The appointment of a trustee is made by the testator while he or she is still alive. Directions are given to the trustee regarding how to distribute wealth after the testator’s death.
Myth 1
Only the Wealthy Create Living Trusts
A common misconception regarding Living Trusts is that only those who are wealthy are eligible to form a Living Trust in their Will. While it is true that it is mostly the rich and wealthy that creates Living Trusts, it doesn’t mean that people belonging to average income groups cannot form a Living Trust. Many people who do not exactly qualify as wealthy have started setting up Living Trusts owing to the many advantages that it offers.
Myth 2
They only Benefit Beneficiaries, not the Testators
Most people form Living trusts in their Will to ensure that their legacy is distributed quickly and in a hassle-free manner amongst the beneficiaries. But a living trust can also be helpful in the event of a testator becoming incapacitated during his or her lifetime.
Having a Living trust in place ensures that the testator’s loved ones do not have to put up with any inconvenience after the estate owner has become incapable of managing his or her affairs.
Myth 3
Placing funds in a trust locks them
A common misconception that most people have about Living Trusts is that by transferring assets into a living trust, they will not have access to their own assets. On the contrary, a testator can make the assets secured by a Living Trust accessible to any person who they would like to give access to, including themselves.
Just like any gift that you leave behind in your Will, it is you who gets to decide who should benefit from the assets which have been placed in the Living Trust. It is also possible to make the assets inaccessible to certain individuals by clearly specifying the same in your Will.
Myth 4
It is expensive or complicated
It is completely false that creating a Living Trust can be a costly or a complicated procedure. Living Trusts can be easily created with the help of online forms which can be found on websites which also allow us to download a free Will template.
While it is true that there is an upfront cost involved in setting up a Living Trust, it is negligible compared to the benefits that it offers. In the long run the benefits outweigh the upfront costs making Living Trust a good option for leaving behind a legacy.
Preparing to Set up a Living Trust
If the above points have convinced you that setting up a Living Trust may not be such a bad idea after all, you should take a look at the points given below in order to ensure that you set it up in the right manner:
- You must include every asset that you own as well as every debt that you owe.
- You should also assign beneficiaries to each asset that you have included in the Living Trust.
- You should appoint an executor who takes charge of the Trust should you become incapacitated or die.
- If there are minor children involved you should make provisions to safeguard their assets until they attain the necessary age. It is usually achieved by appointing a financial and physical guardian.
If you are still of the opinion that a living trust is not a feasible option, you should certainly write a Will in order to ensure that your assets do not get distributed according to intestacy laws and against your wishes.
