We posted this blog post many years ago, but, it is worth repeating. We often get questions from clients and colleagues who are confused about what exactly a Living Trust is and the advantages and limitations of incorporating a Living Trust in an estate plan.
A “Living Trust”, also known as a “Revocable Trust,” often is advertised as a way to avoid probate and quickly transfer assets to family members upon death. However, there are many misconceptions about Living Trusts:
Myth 1: A Living Trust will avoid statutory Probate Court fees.
Truth 1: The assets in a Living Trust still are considered part of your gross taxable estate and therefore are subject to statutory Probate Court fees.
Myth 2: A Living Trust will reduce estate taxes.
Truth 2: The assets in a Living Trust still are considered part of your gross taxable estate; therefore, a Living Trust does not reduce your estate tax bill.
Myth 3: A Living Trust avoids the need to file a Connecticut Estate Tax Return.
Truth 3: Even with a Living Trust, a Connecticut Estate Tax Return must be filed with the Probate Court.
Myth 4: A Living Trust will protect assets from creditor claims and lawsuits.
Truth 4: Assets in your Living Trust are available to your creditors while you are alive.
Myth 5: A Living Trust protects your assets in the event long term care expenses are incurred.
Truth 5: A Living Trust provides absolutely no protection of assets if long term care is required; assets in your Living Trust still are considered owned by you.
Myth 6: The Probate Court can be completely avoided with a Living Trust.
Truth 6: Some involvement with the Probate Court cannot be completely avoided in Connecticut; at a minimum, a Connecticut Estate Tax Return must be filed with the Probate Court even if all of your assets are in the Living Trust.
Myth 7: Everyone’s estate plan should include a Living Trust.
Truth 7: A Living Trust is not necessarily for everyone. As with every estate plan, a Living Trust should be used only if it is the best tool to meet the specific needs of you and your family.