MISCONCEPTION # 1: Living Trust reduce or avoid taxes. WRONG! Living Trusts do not
save estate, inheritance or income taxes. During the lifetime of the settlor (the person who
creates the living/revocable trust) is treated as the owner of the trust as he can revoke it.
Therefore, all of the income earned by the trust is included in the owner's income. When the
owner dies, the assets of the trust are included in the owner's estate for federal estate tax
purposes. Traditional methods of minimizing the federal estate tax, such as use of the unified
estate tax credit and the unlimited marital deduction, can be incorporated into a will or a living
trust. Thus, despite the claims of some living trust advocates, there is no income or estate tax
advantage to establishing a living trust.
MISCONCEPTION # 2: Living trusts save time and money. FALSE! Living trusts often cost
substantially more than a will. Proponents often argue that living trusts save the time and money
associated with probate, including court costs and legal fees. In many situations, however, the
decision whether to use a living trust comes down to whether a person wants to "pay now, or pay
later." There are legal fees for setting up the trusts and transaction costs involved in transferring
assets (such as fees for preparing and recording a deed to transfer real estate into a living trust).
In the worst case scenario, the result is "pay now, and pay later." If all of the assets have not been
transferred to the trust prior to death, those assets will have to go through probate anyway. The
only person who is better off in this situation is the attorney who gets to set up the trust and
administer the estate.
Even if someone sets up a living trust, he must still have a will to transfer any assets that
were not transferred to the trust prior to death. In addition, a person who establishes a living trust needs a power of attorney in the event of incapacity of the individual in order that someone else
can manage the assets that were not transferred to the trust prior to the incapacity.
MISCONCEPTION # 3: Living trusts ensure privacy. USUALLY NOT! The revocable trust can maintain privacy as to personal property, but not as to real estate. The transfer of real estate property into the trust as well as a Declaration of the basic aspects of the trust are recorded in the
conveyance records of the parish where the property is located.
Furthermore, many banks and brokerage firms require a copy of the trust agreement in
order to open an account for the trust. Consequently, living trusts do not guarantee that a
person's assets will remain free from public scrutiny.
MISCONCEPTION # 4: Only living trusts can be used to manage the affairs and avoid
interdiction of the incapacitated person. NOT TRUE. A durable power of attorney can avoid
interdiction.
Proponents argue that a living trust saves the cost and time involved in getting a curator
appointed. A durable general power of attorney can be used to manage the financial affairs of an
incompetent person in lieu of an interdiction proceeding. A power of attorney generally is less
expensive and more efficient than a living trust.
MISCONCEPTION # 5: Probate must be avoided at all costs. NOT IN LOUISIANA! Probate
in Louisiana is relatively uncomplicated.
Probate is the process whereby the probate assets of the estate are distributed to the heirs
or legatees. Although advocates of living trusts stress that probate must be avoided at all costs,
the evils of probate are greatly overstated. Certainly, there are court costs and legal fees
associated with probate, but these future costs may be less than the immediate costs of setting up
a trust. In addition, many of the costs associated with probate, such as preparation of the federal
estate tax return, will be incurred in administering a living trust as well.
In some states the probate process can be time-consuming and expensive, but in
Louisiana it is relatively uncomplicated.
In a simple estate the heirs or legatees can go directly into possession of the probate assets without an administration. In Louisiana, the actual probate costs are minimal compared to
other states.
In an estate where an administration is mandated Louisiana now has the availability of an
independent administration. In an independent administration the independent executor or
administrator is named and/or confirmed and Letters of Administration are issued. The letters are
the administrator's authority to handle the affairs of the probate estate without additional court
appearances other than the final documents associated with closing our the estate.
Living trusts do have certain advantages. For example, if a person owns real estate in
more than one state, a trust will allow his estate to avoid additional probate proceedings in states
other than his domicile. However, an L.L.C. can be utilized which is less complicated, less costly
and can shield you from personal liability. A living trust can also be utilized by a person, who is
in poor health, or does not want to be bothered with investment decisions, in order for someone
else to manage his affairs. However, it generally is less complicated and less costly to use a
durable general power of attorney for this purpose.
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