5 Myths About Trusts

5 Myths About Trusts

April 18, 2024

Trusts can be an important part of an overall estate plan, yet only 33% of Americans have a will or living trust. 

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 wilI
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. As mentioned earlier, working with an experienced estate attorney 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 your financial professional, who can partner with you and your trust attorney in this area. Reach out to them to learn more.

Read More

1. Caring.com 2022 Wills and Estate Planning Study

LPL Financial does not provide legal advice or tax services. Please consult your legal or tax advisor regarding your specific situation. Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.