Debunking Trust Myths and Misconceptions
By Allyson S. Heller
When it comes to estate planning, people tend to have misconceptions about living trusts, many of which stem from secondhand accounts from unreliable sources. Below, I debunk some of the most common myths about trusts.
“Trusts are for rich people.”
By far the most common misconception I hear from clients is that they do not think they need a trust because they have minimal assets. In reality, a person’s cumulative wealth is irrelevant in determining whether or not that individual is a good candidate for a living trust.
A trust is always recommended for anyone who owns real property, as in California, upon death, any property that is not held in trust must be administered in probate court. A trust may also be appropriate for individuals who have assets other than real property, depending on their circumstances.
“Instead of creating a trust, I can pass my house down to my children by adding their names to title.”
Although adding your children to your property as joint tenants may seem like a simple and convenient option to transfer assets, it carries a number of risks, such as the potential for multiple probate proceedings and joint liability, along with serious tax disadvantages. For these reasons, a trust is always recommended for real property transfers.
“A living trust will protect me from lawsuits and creditors.”
The primary purpose of a trust is to avoid costly and time-consuming probate proceedings. Because the trust is revocable, meaning the trust creators retain full control over the assets during their lifetime, it does not provide third-party liability protection.
“I don’t need a trust if I have a will.”
While a will may be appropriate for certain individuals who do not own real property or have minor or special needs beneficiaries, as previously discussed, a will does not protect your estate from probate court. In California, all wills must be submitted to probate court, whereas a trust can be administered outside of court at a fraction of the time and expense. Depending on your situation, failing to establish a trust may result in unnecessary costs and complications to your loved ones. It is important to consult with an experienced estate planning attorney to determine whether a trust or will is appropriate for you.
“Trusts are expensive.”
While establishing a trust is not without expense, the cost of not having a trust can be significantly greater. For comparison, while the cost of a trust and estate plan can range on average between $2,000 – $4,000, because probate fees in California are determined as a percentage of the gross value of the estate, an average probate fee can run around $30,000. Additionally, probate filing fees and court costs average around $2,500. Investing in a trust now can save your estate thousands of dollars in the future.
In order to avoid the pitfalls of these misconceptions, it is important to consult with an experienced estate planning attorney to determine whether or not a trust is right for you.