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Putting Faith in Trusts and Dispelling their Myths

Putting Faith in Trusts and Dispelling their Myths

April 16, 2024

Trusts are an important part of an overall estate plan, but as helpful as they can be, there are a fair
number of misconceptions about them. We dispel those myths.

Trusts are an important part of an overall estate plan, and should not be overlooked
For the average investor, setting up a trust with your estate attorney as part of estate planning can
make a lot of sense. For wealthy investors, it can be nearly essential. So why then do only 33% of
Americans have a will or living trust? [1] Truth is, as helpful as trusts can be, there are a fair number
of misconceptions about them — and those misconceptions can get in the way of taking action.

The beauty lies in the benefits
Trusts come with benefits for both the trustor as well as their heirs. The latter part of this
makes sense when you think of the purpose of a trust. Trusts don’t simply ensure your assets are
distributed according to your wishes, they ensure how the assets are distributed.
Unlike a will, the provisions of a trust are private and not subject to probate. This means:

  • Privacy — for you and your beneficiaries. Your
    information and legacy remain confidential, out
    of the public eyes of a court.
  • Potentially improve the distribution of assets.
    Going through the court process can take a fair
    amount of time. In addition to that, it comes
    with its own share of fees.
  • Setting up a trust may be less expensive than
    the cost your loves one may incur with the
    probate process. That’s because probate-related
    fees to the attorney and the court and can add
    up quickly.

Beyond avoiding probate court, protection is another benefit of setting up a trust. This
protection can play out in two ways with a revocable trust. First, when you pass away, the
assets can continue to be held for the benefit of your beneficiaries — protected from creditors and
divorcing spouses.
A trust is controlled by you while you’re living. Should you become incapacitated, the successor
trustee should ensure you have the care you need. The responsibility of the successor trustee is to
manage the assets and make payments on your behalf.

Common misconceptions about trusts
Because of the complexities that go with trusts — from the different kinds to the highly detailed laws
that govern them, there are a number of myths that are associated with trusts.

Myth 1: Trusts are expensive
Truth is, when you compare the cost of creating
a trust to the costs associated with probate (e.g.
probate court and lawyer fees), probate may be
the more expensive of the two.

Myth 2: All assets should be put in a trust
Not necessarily. There’s a process for distributing
the assets in a trust, so it will take time. If there
are loved ones who will need money immediately,
those funds may be something to leave out of
the trust. The most common designations are to
individuals — for example, all to a spouse or in
equal shares to children. However, a trust also
can be named as an IRA beneficiary, and in many
instances, a trust is a better option than naming
an individual.

Myth 3: If you have a trust, you don’t need a will
Continuing the idea from myth two, a will is
needed to deal with any assets left out of a trust
that do not convey via beneficiary or transfer on
death designation. So to be sure all assets are
distributed as intended, even those left out of
trust, a will should always be in place.

Myth 4: Trusts ensure that my heirs will avoid probate court
Trusts can enable your estate to avoid probate, but
a poorly drafted trust can result in probate court.
Similarly, assets owned outside of the trust may
still be subject to probate. Working with our experienced
Paralegal is key.

Myth 5: All trusts offer tax advantages
Remember, there are different kinds of trusts.
So while some do offer tax advantages, not all
do. Revocable trusts in particular offer no tax
advantages and do not require a separate income
tax return during the trustee’s life.
These are a handful of just some of the myths
that create an air of confusion. And given the
technical complexity of trusts, it’s easy to see how
myths lead to misconceptions. If anything, that’s
all the more reason to talk with me and I can partner with 
you and our on staff Paralegal. Reach out to 
learn more

[1] 2022 Wills and Estate Planning Study

Cobalt Unlimited and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.