Misconceptions with Revocable Trusts | Felinton Elder Law Estate Planning Asset Protection

Misconceptions with Revocable Trusts

When it comes to legal issues related to wills, trusts, and probate for the elderly, it is critical for people to fully understand the legal ramifications and tax effects involved with implementing these types of legal instruments. Misinformation often leads people to make assumptions that can cause significant problems at inopportune times. Revocable trusts are quite possibly one of the most misunderstood legal instruments people use. It is important to dispel some common myths regarding revocable trusts.

They Reduce Tax Liability
Untrue. There are two types of taxes associated with revocable trusts, income and estate. As far as income taxes are concerned, there are no provisions that allow for any type of tax relief related to this type of trust. If income is earned by the trust’s assets, it is still subject to income taxes at the grantor’s statutory tax rate. With estate taxes, they are still applicable beyond the normal estate tax exclusion parameters.

They Eliminate the Need for Probate
Untrue, under some circumstances. There are two things to consider here. First, unfunded trusts need to go through probate in order to properly assign the trust’s assets. Secondly, some states require these types of trusts, including fully funded trusts, to go through probate in order to facilitate certain legalities such as addressing creditor’s rights or determining state tax issues. But a properly funded trust can avoid probate.

They Protect Assets from Potential Lawsuits
Untrue. The fact that the grantor still owns the assets and maintains control over them keeps the grantor from being able to use this type of legal instrument to hide assets from creditors. If the grantor wants to protect assets, they might want to consider using an “irrevocable trust” or some other type of asset protection plan.

They Eliminate the Need for a Will
Untrue. – The grantor will usually transfer major assets such as real property, large banking/investment accounts and valuables into a living trust. What they don’t transfer are the more fluid or liquid assets. A will is still needed in order to insure that all assets are legally addressed. This is particularly important with major assets that are inadvertently left out of the trust due to timing issues or convenience.

It is not reasonable to expect the average person to completely understand the intricacies of Revocable Living Trusts. These are important protections. In order to avoid problems and mistakes, it is advisable you contact Felinton Elder Law & Estate Planning Centers for a consultation on setting up a legal and effective Revocable Living Trust and will. Let Felinton Elder Law & Estate Planning Centers help you protect the future of your assets.