The Truth about Living Trusts

Chances are that most of what you think you know about living trusts is wrong. That’s especially true if you’ve been listening to scammers who tout living trusts as a solution to every financial problem you’re likely to encounter. One of the more attractive claims that these con artists make is that a living trust can shelter your assets from creditors and litigators. Not true, according to legitimate financial pros.

A living trust is what’s know as a revocable trust, meaning you keep control of the assets in the trust and can take them out at any time. If you can voluntarily remove an asset from a trust, say the experts, a creditor can force you to do it.

Another claim is that a living trust can save you money on income taxes and estate taxes. Not so. Since you control the assets in the trust, tax law considers those assets yours, so any income generated by those assets is yours, and you pay income taxes on it. The same logic applies to estate taxes. The assets in the trust are yours, so they revert to your estate when you die, and they are subject to estate taxes.

So what good is a living trust? The main advantage is that assets held in a living trust avoid probate. Assets that must go through probate can be tied up for months, and legal fees can eat up 5% or more of your estate. But state probate procedures vary; the process in your state may be so simple that it may not be worth the effort involved to set up a living trust. For more information on living trusts, go to the Federal Trade Commission web site (www.ftc.gov) and plug “living trusts” into the Search box.