Living Trusts: Myth vs. Fact

There have been many claims in advertisements and websites touting the benefits of a living trust. While a living trust is certainly a powerful estate planning tool, it may not live up to some of the claims being made. Here is the truth behind the most common myths.

Myth

A living trust avoids estate taxes.

Fact

A living trust avoids probate, but not estate taxes. Property in a living trust is still part of the taxable estate of the deceased. The advantage is that it does not need to pass through probate.

Myth

Every estate should have a living trust.

Fact

Many estates may benefit from a living trust, but no single estate planning tool is perfect for everyone. Smaller estates may not gain enough benefit to justify the cost and may be better served with simpler tools such as a durable power of attorney.

Myth

A living trust takes the place of a will.

Fact

Even with a living trust, a will is still necessary to name guardians for minor children, appoint an executor, and handle property not placed in the trust.

Myth

You must hire a trustee to manage a living trust.

Fact

You may act as the trustee of your own living trust during your lifetime. You may also choose a trusted friend, family member, or professional to serve as trustee at any point. A trustee does not have to be a professional, and they may hire legal or financial advisors if needed.