Five Common Myths About Revocable Living Trusts and Why You Shouldn’t Believe Them

Trusts have been around for centuries, with their foundations dating back to Roman Law. Today, the Revocable Living Trust is one of the best and most efficient foundational tools in an estate plan, but its reputation is sometimes tarnished by common myths and misconceptions. Here are five of them and why you shouldn’t believe them.

Myth #1: Trusts Are Only For Ultra-Rich People

It’s not uncommon to read about “trust fund kids” living off their inheritance, becoming lazy and spoiled. It’s also not uncommon to hear that you only need a trust if an estate might be subject to federal estate taxes, which is a very high bar with the current exemption at $12,920,000 per person in 2023. While “trust fund kids” are a news-worthy occurrence in Hollywood, and some estates do need help with estate taxes using other types of trusts, these are not the ordinary purposes or outcomes of a Revocable Living Trust.

In truth, Revocable Living Trusts are used to efficiently give whatever you have—whether it’s a lot or a little—to whoever you want, and in the manner you want it to be given, without involving the probate court. Although the probate court is relatively efficient in Texas, it is a public, sometimes stressful and always time-consuming process that adds extra expense to your estate administration.

Bottom line: Trusts are for anyone who wants an efficient mechanism to control assets during your lifetime, while you are incapacitated, and after you’re gone, and they do not require millions of dollars to make them worthwhile; the administrative benefits your estate receives from establishing a trust do NOT depend on the amount of assets in your trust.

Myth #2: Trusts Are Always Too Restrictive

People often fear that when they have assets in a trust, it will be difficult to access the assets, and they are afraid to create something that will take away or limit their control. 

But the truth is that trusts can be drafted in a myriad of ways—they can be restrictive or flexible, whatever you prefer. After you put assets in your trust (also called “funding” your trust), depending on the type of trust and the way it’s drafted, those assets will be as accessible or inaccessible as you want them to be.

A Revocable Living Trust is by its very nature completely open to your later decision to change or revoke it, and you can move assets in and out of the trust as you choose. It does not restrict your use of those funds in any way during your lifetime, but if you’d like, you can impose certain controls on your heirs’ access to the assets, include asset-protected sub-trusts that give your heirs added protection, and dictate what happens to the assets after your named heirs are also gone.  But that is all up to you—just because you put money in a trust does NOT mean you are restricting your heirs’ access to them, unless you want to.

Bottom line: Trusts are as restrictive as you want them to be, and no more.

Myth #3: Trusts Are Too Complicated

Just the word “trust” makes some people cringe who have heard stories about complicated trust administration after someone has died.

But the truth is that a lot of those difficulties were caused by a complicated estate (and complicated relationships), and not by the trust itself. Whatever the issues were, they likely would have been magnified if the probate court were also involved. 

Setting up, funding, and managing a Revocable Living Trust is not as complicated as it sounds, and you do not need a full-time CPA to manage it. Instead, it uses your own SSN for tax returns, so you won’t even need to file a separate tax return, and it will not change the day-to-day management of your finances during your lifetime. After death, administering a trust is actually easier for beneficiaries because, while they still have to deal with the trust assets, they do not have the extra burden or uncertainty of going through the probate court process.  And if all the assets have already been gathered under one trust umbrella, there is less work to identify and gather assets after someone is gone.

Bottom line: Trusts don’t have to be complicated, and by avoiding the probate court, they can ease the administrative burden on your beneficiaries.

Myth #4: Trusts Are Too Expensive to Create

Another similar myth is that trusts are wildly expensive and out of their price range to create.

The truth is that while the initial cost of a trust is usually higher than the initial cost of a will, it can be short-sighted to think that is the only cost factor. In a will-based plan, you are planning to go through a probate court process, and if you’re married, your heirs will have to go through that process twice—once for each spouse/parent. In a trust-based plan, the structure of your trust and complexity of your assets determines how much trust administration is required at death. But the combined cost of two wills, two probates, and two Will administrations will almost always outweigh the cost of one Joint-Revocable Living Trust and its administration.

Bottom line: Trusts may be more expensive to set up, but if done right, they will save money (and stress) for your estate and heirs in the long run.

Myth #5: There is Only One Type of Trust

People often use the word trust to describe many different types of trusts, believing that there is one type and everyone who has one is referring to the same thing.

The truth is that while the most common estate planning trust is a Revocable Living Trust, there are many other types of trusts that can be part of your planning, including Testamentary Trusts, Marital Trusts (QTIP), Family By-Pass Trusts, Descendants’ Trusts, Life Insurance Trusts (ILIT), Special Needs Trusts (SNT), Charitable Trusts, Credit Shelter Trusts, Spousal Lifetime Access Trusts (SLAT), and more.

Bottom line: While the most common tool and foundation for estate planning is a Revocable Living Trust, there are many other types of trusts that may be useful in your planning.

In sum, please don’t let the media and other horror stories skew your view of trusts. They are flexible planning tools that are not as restrictive, complicated, or expensive as you may think, and they are NOT just for the ultra-rich. They are useful for anyone who desires to ease the administrative burden on their heirs, and we would love to meet with you.

Please contact us today and we will help you find out if a trust is right for you!