Why the typical Idahoan does NOT need a living trust.
A question I hear often in my practice is: *why should I get a will and not a living trust?* Through aggressive marketing, living trusts are becoming increasingly popular among Idahoans. Most clients I see believe that trusts are more secure, dodge the *death tax*, putting assets in a trust can keep them from creditors, etc. What I have had to tell virtually all of my clients is: it*s all bogus and you don*t need a trust.
Trusts and wills are instruments of estate planning. A will is a document that, when properly drafted and executed, allows the testator (you) designate where your assets and property will transfer when you pass away. A living trust is a legal document that allows a grantor (you) to appoint a trustee to manage property deposited into the trust and also allows the grantor to designate who will receive what*s in the trust when you pass away.
Upon the passing of a testator, a will must be submitted to the court for a process called probate. Upon the passing of a grantor, the trust is not submitted for probate.
The following are my top-5 myths about Living Trusts:
#1: Everybody Should Have a Living Trust
The typical Idahoan family does NOT need a living trust, no matter what their friends, family, or attorney tells them. There are two reasons to have a living trust: when you know you will not be capable of managing your assets in the near future OR when you have real property outside of the state. Both make sense. If you are ill and aware that soon you will not have the ability to manage your assets, it may be in your best interest to establish a living trust. Or, if you have real property, like vacation homes, rental property, etc., outside of the state, it is better to place that property in trust to avoid the complexity of having to file for probate in each state where property sits.
#2: Living Trusts Dodge the *Death Tax*
This is a common misconception. The *death tax* is the popular name as the gift tax/estate tax, which is a tax on your estate when you pass away. First, it should be noted, living trusts are subject to the gift tax/estate tax; a trust does not shield your estate better than a will. Second, and more importantly, most Idahoans are not and will not be subject to any gift tax/estate tax. Idaho does not have a state level estate tax. The federal estate tax only applies to taxable estates higher than $5.6 million (single) or $11.2 million (married).
#3: Living Trusts are More Private than a Will
This is a complicated but common misconception. It is true that trusts are private and wills are public documents. However, wills are not public in the way most people would think. It is public in that anyone can go to the court house where the will was filed and ask to see a copy. It*s not published on the internet or widely dispersed. Frankly, I have known some nosey people, and none of them ever went down to the courthouse to check a neighbors will when the neighbor passed. It just doesn*t happen.
#4: Living Trusts Avoid Will Contests
Just about everyone has heard horror stories about family members fighting over a loved one*s estate, and most people would rather avoid that type of problem. However, living trusts can be contested on the same grounds as a will. Additionally, some attorneys try to sell clients on no-contest clauses in trusts. In reality, no contest clauses can be put in wills and trusts alike and, in the state of Idaho, neither is enforceable in court.
#5: The Probate Process Takes More Time and Money
With large numbers of Californians moving to Idaho, this belief does not surprise me. Most people in California use trusts in their estate plan. This is due to California having an unnecessarily complex probate process. As a result, in California, it is more cost efficient to have a trust. However, in the state of Idaho, the probate system is far more manageable which means that the process usually takes less time and costs less.
If you have any additional questions regarding estate planning, do not hesitate to reach out.
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