John R. Tatone & Associates, PLC
5 COMMON MISCONCEPTIONS ABOUT TRUSTS
By John R. Tatone
Over the last 20 years, I have met with many clients who had unnecessary or inadequate trusts. Sometimes the trust was just outdated and sometimes circumstances or the law had changed since the time the trust was written. Often they were “scared into” having a trust by less than honest attorneys, TV, or friends and family that told them a story of how the government took all of a loved one’s money. Below are 5 of the most common misconceptions that I have heard from clients during my 20 years of experience.
1. My loved ones will have to pay inheritance tax if I don’t have a trust.
Federal Inheritance or Estate Tax only applies to Estates with combined gross assets and prior taxable gifts exceeding $5,430,000. Although I do have some clients that are concerned with this tax, and there are tools that I use to deal with this issue, a vast majority of my clients do not have assets close enough to this level to worry about the Federal Inheritance Tax. There is currently no Michigan Inheritance tax. However, an Estate tax return must be filed based upon the Decedent’s income or if the Estate generates income while being administered. In either event, there is no Trust that is necessary to eliminate this tax for Estates with less than the federal level.
2. A Trust will prevent fighting among my children.
The Trust document itself does not prevent a loved one from contesting the Trust in Probate Court. It is just as easy or difficult to contest a trust as it is a will. The good news is that there are specific provisions to include in the trust document to make contesting the trust more difficult and, thus, less likely.
3. A Trust is necessary because I have children.
Although I often recommend a trust when my client(s) have small children to prevent the child from inheriting a large sum of money or assets when they turn 18 years old, a trust may not be the necessary if a very good will is prepared or the asset level is minimal. In addition, if the children are older, financially responsible or the assets are all in joint names with the adult children, a trust may also be unnecessary.
4. A trust will keep my estate plan confidential.
This statement is true as long as there is no contest to the trust or fighting about the administration of the trust assets. The distribution of assets and money from a trust generally does not require documents to be filed in a court nor do all of the provisions of a trust shared with all of the beneficiaries. In order to contest a trust the appropriate documents, along with a copy of the Trust, are filed in a County Probate Court. Thus, if the goal of the decedent was to have his or her estate planning documents remain confidential, a Trust may not guarantee that will happen.
5. A trust will protect my assets from my creditors.
Occasionally, I have clients who believe that as long as everything is in a trust, their creditors will not be able to access their money. Although there are “spendthrift” clauses in many trusts, such clauses protect the money or assets from the beneficiary’s creditors. A trust may not protect the money or assets from the grantor/settlor’s creditors, depending upon many other factors such as the nature of the asset, whether the trust is revocable or irrevocable and whether the trustee is the settlor/grantor.
A good estate plan does not necessarily include a trust. In fact, a trust may not be necessary and may double or triple the cost of an effective estate plan. There are other documents or products that may be used to achieve the goals of the client while keeping costs to a minimum. Estate Planning is full of pitfalls, misconceptions and unnecessary costs.
I wrote this article to educate individuals to identifying those who would take advantage of common misunderstandings for their own benefit. The key is to find a good Estate Planning Attorney that you can trust. A good Estate Planning Attorney should be willing to educate you regarding your options, keep your goals in mind with each part of the plan and answer your questions thoroughly, without the legalese.
Attorney John R. Tatone has 20 years of experience in Wills, Trusts and Estate planning, in addition to completing the Probate & Estate Planning Certificate Program through the Institute of Continuing Legal Education. He is the founder of the law firm of John R. Tatone & Associates, PLC.
This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information call 888-988-LAWS (5297) or e-mail to firstname.lastname@example.org.
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