Top 5 Misconceptions about Trusts

Trusts are a vital component of many estate plans, offering flexibility and protection for individuals who want to manage their assets effectively. Despite their benefits, misinformation and misconceptions often prevent people from considering trusts as part of their planning. To provide clarity, the Indianapolis attorneys at Frank & Kraft discuss the top five misconceptions about trusts as part of a comprehensive estate plan.

1. Trusts Are Complicated and Too Expensive: A common misconception is that trusts are prohibitively complex and costly to create. While some trusts are highly sophisticated and involve intricate terms, many are straightforward and affordable to establish. The amount of time and cost involved depends largely on the type of trust and the objectives it serves. A basic revocable living trust can often be created with minimal effort and expense, particularly when working with an experienced attorney. By contrast, irrevocable trusts designed for tax reduction or asset protection require more planning and resources, but they deliver long-term benefits that typically outweigh the initial investment.
2. You Lose All Control of Assets in a Trust: This misconception is partially true, but it depends on the type of trust created. A revocable living trust offers substantial control because you can serve as your own Trustee and manage the assets as you see fit. You retain the authority to add or remove property and even revoke the trust entirely if your circumstances change. This flexibility makes revocable trusts ideal for incapacity planning since you can name a trusted individual as a successor trustee to step in only if you become unable to manage your affairs. Conversely, an irrevocable trust operates differently. Once assets are transferred into an irrevocable trust, they generally cannot be reclaimed, and the trust cannot be altered without significant legal action. This loss of control is intentional because irrevocable trusts are often used for asset protection or tax reduction. By removing the assets from your control, you also remove them from your taxable estate, which can result in substantial tax savings for large estates.
3. Trusts Are Only for the Wealthy: Many believe that trusts are designed exclusively for those with significant wealth. While this perception may have had merit decades ago, it is no longer accurate. Although high-net-worth individuals still use trusts to manage large estates, these tools are equally beneficial for people with modest means. A trust can be customized to address a variety of goals, from protecting a family home to planning for a child’s future. Whether your estate is large or small, a trust can offer advantages such as probate avoidance, privacy, and incapacity planning.
4. A Trust Replaces the Need for a Will: Some assume that once a trust is created, a Last Will and Testament is unnecessary. This belief is incorrect. Although a trust can direct how your assets are distributed, a Will remains essential for several reasons. First, it allows you to name a guardian for minor children, a role that cannot be assigned through a trust. Second, a Will enables you to appoint an Executor to oversee the administration of your estate. Finally, most individuals need a “pour-over Will,” which ensures that any assets not titled in the name of the trust during life will be transferred to the trust at death. Without this safeguard, those assets could be distributed in ways that do not align with your intentions.
5. The Only Purpose of a Trust Is to Avoid Probate: Avoiding probate is a common motivation for creating a trust, but it is far from the only reason. Trusts serve numerous purposes beyond bypassing the court process. In addition to the numerous benefits a trust can provide, trusts provide a level of privacy that Wills cannot. When a Will is submitted to probate, it becomes a matter of public record, whereas a trust remains private and is administered outside of court oversight. Common examples of trust benefits, in addition to probate avoidance, include:
   1. Safeguard an inheritance for a minor or young adult.
   1. Provide for a loved one with special needs without jeopardizing government benefits.
   1. Reduce exposure to estate taxes.
   1. Plan for potential incapacity by designating a successor trustee.
   1. Set aside funds for a pet’s care.
   1. Protect assets when applying for Medicaid.
   1. Cover funeral and burial expenses in advance.

Do You Have Questions About Misconceptions About Trusts in Your Indiana Estate Plan?

For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about common misconceptions related to trusts within a comprehensive estate plan, contact an experienced Indianapolis estate planning attorney at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.

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