Although wills and trusts have been standard legal documents for a long time, many people still have misconceptions about them.
Estate planning can be complicated by the fact that many people have misconceptions about the basics of wills and trusts and what having either one of them means. This problem is compounded by the Internet as people who are wrong, often share their misconceptions with other people online. The result is more confusion.
Recently, TCPalm discussed common misconceptions in "Common misconceptions about wills and trusts," including:
- Having a will means that your estate does not have to go through probate. This is completely false. In most cases, wills have to be submitted to a probate court for administration in both Maryland and the District of Columbia.
- If your estate is not large enough to pay the estate tax, then you do not need to have a will or trust. This is another falsehood since there are many other reasons to have a will or trust. The most important is that if you do not, then all of your property will be distributed according to statutory rules instead of how you might have preferred it to be distributed.
- By putting your assets in a revocable trust, you lose the ability to have any control over the assets. This is not true. If you are the trustee of your trust and the trust is drafted properly, then you will still be able to do whatever you want with your assets during your lifetime.
- You have to file a separate tax return for your revocable trust. This is also not true. As long as your trust is properly drafted, a revocable trust will not be considered a separate legal entity during your lifetime and you will not need to file a separate tax return for it.
- Another misconception about revocable trusts is that they reduce your tax burden. They do not. Some irrevocable trusts do that. Call Profit Law Firm for a consultation and advice on using revocable trusts and irrevocable trusts.
Talk to a qualified estate planning attorney who will be more than happy to educate you on the realities of estate planning.
Reference: TCPalm (Dec. 2, 2016) "Common misconceptions about wills and trusts."
Learning about trusts can sometimes be difficult as there are several different types of trusts that you can get that are designed to do different things.
When attorneys talk about trusts they often end up confusing laypersons with all of the legal jargon. There are many different types of trusts out there and each type has its own terminology. This legalese can be difficult for the uninitiated to understand.
This is a problem for people who would like to set up a trust. They need to know what it is their attorneys are talking about so they can choose the right type of trust.
Recently, the Motley Fool discussed some common trust types in "Navigating the World of Trust Funds: Your Quick Guide," including:
- Revocable Living Trusts – These are trusts the settlor (the person who creates the trust) can easily dissolve. If circumstances change, assets in the trust can be removed and a different trust can be created. These trusts avoid probate. They do not reduce taxes.
- Irrevocable Trusts – These trusts cannot be revoked. They often have estate tax benefits, while revocable trusts don't.
- Credit Shelter Trusts – While not as useful as they used to be, these trusts still offer a good way to avoid some estate taxes. They are particularly useful in Maryland and DC, which currently have state estate taxes for estates greater than $2million and $1 million. Assets in the trust are held for the benefit of children normally, but a spouse can still use those assets while he or she is alive. The assets are not counted as part of the spouse's estate for tax purposes.
- Generation-skipping Trusts – These trusts are created for the benefit of grandchildren instead of children. This is normally done for estate tax purposes, but the trusts need to be set up by experts to avoid other tax issues.
- Qualified Personal Residence Trusts – These very specific trusts are a way to pass a home on to heirs while minimizing estate and gift taxes on the home.
When it comes to deciding which trust “flavor,” if any, is appropriate for you, be sure to contact a qualified estate planning attorney.
Reference: Motley Fool (Sept. 18, 2016) "Navigating the World of Trust Funds: Your Quick Guide."
Suggested Key Words: Estate Planning, Trusts