A comprehensive estate plan will typically include a wide range of estate planning tools and strategies in order to fulfill all of the various estate planning goals. Although a Last Will and Testament often serves as the foundation of an estate plan, another common tool found in the average estate plan is a trust agreement. Unfortunately, there are a number of myths and misconceptions people share about trusts that often cause them to shy away from considering a trust for their estate plan. In an effort to try and dispel some of those myths, the trust lawyers at Hedeker Law, Ltd. share common myths about trusts.
What Is a Trust?
Before addressing the numerous myths about trusts, it may help to first define a trust. At its most basic, a trust is created using the following five elements:
- Settlor – the person who creates the trust. Also referred to as the Maker, Grantor or Trustor.
- Trustee – the person, or organization, that oversees the administration of the trust and manages trust assets.
- Beneficiary – the party who receives the benefits of the trust. A beneficiary may be a person, an entity, or even the family pet. A trust may also have both current and future beneficiaries.
- Terms – the Settler of the trust creates the terms that govern the trust. Terms may be almost anything as long as they are not illegal or unconscionable.
- Funding – almost any assets can be used to fund a trust, including cash, securities, proceeds of a life insurance policy, or real property.
Because a trust is not something the average person will create or use on a daily basis, there are a number of common myths that have developed about trusts over the years, including:
- Trusts are only for the wealthy. This was once largely true; however, not anymore. Over the years, trusts have evolved to the point where they are very user-friendly. Today, the average person can often benefit from the addition of a trust in their estate plan without regard to the size or value of his/her estate assets.
- Once you transfer assets into a trust you cannot get them back. This one is partially true. Trusts can be revocable or irrevocable. If you transfer assets into a revocable trust, you can easily transfer the assets back out of the trust whenever you wish. On the other hand, once you transfer an asset into an irrevocable trust, the asset becomes the property of the trust. In that case, you no longer control the asset.
- Creditors cannot get to assets held in a trust. This is also partially true. If the assets are held in a revocable trust it is not safe from creditors; however, if the assets are held in an irrevocable trust they are typically out of the reach of creditors because you no longer have any legal ownership interest in the assets.
- You lose control of assets once they are transferred to a trust. This also depends on what type of trust is involved and who the Trustee of the trust is. A revocable living trust is often used for incapacity planning because you have the ability to name yourself as the Trustee of the trust and someone you trust as the Successor Trustee. In that case, you will continue to control the assets held in the trust as the Trustee unless you become incapacitated, at which time control will shift to the Successor Trustee. If, however, you are not the Trustee of the trust, or an irrevocable trust is involved, you will indeed lose control of the assets.
- Modifying a trust is difficult. Not true if the trust is a revocable trust. A revocable trust can be modified using a trust amendment or a trust restatement, either of which can be completed relatively easily with the assistance of your trust attorney.
- Trust assets go through probate too. Not true. In fact, this is one of the primary reasons why people choose to use a trust as their primary document for the distribution of estate assets. Assets held in a trust bypass the probate process, meaning they can be distributed to beneficiaries much faster.
Contact Trust Lawyers
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns regarding trusts, contact the experienced trust lawyers at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.