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The Truth About Trusts
A living trust does not avoid probate. Any property outside the trust is subject to probate, but the good news is that probate in NM and TX really isn’t a scary process.
A living trust does not necessarily avoid costs. The cost of creating and funding the trust is usually greater than that of probate.
A living trust may cause you extra expense in maintenance. All after acquired property needs to be added to the trust. Amending a trust is usually more cumbersome than tearing up an old Will and creating a new one. Trusts often require additional tax documents and filings every year.
A living trust does not protect assets from creditors. In fact, if this is done incorrectly, with a certain creditor in mind at the creation of the trust, this could even be fraud.
A living trust does not avoid a guardianship unless it is properly created before the beneficiary’s incapacity.
A living trust does not prevent heirs from arguing over property or contesting the estate. A trust does help to preserve privacy and can keep assets out of the public record, but a trust can’t prevent fighting over the distribution of those assets. However, if you and/or your spouse have children from a previous relationship, a trust might be a good option for you to ensure that both your spouse is taken care of and that some assets are preserved for your children.
A living trust does not necessarily reduce taxes. For 2018, the estate and gift tax exemption is $10 million per individual. That means that an individual can leave $10 million to heirs and pay no federal estate or gift tax. Most people’s estates are well under the current estate tax exemption amount, so their estates aren’t subject to federal estate taxes at all. The only estates subject to the estate tax are estates valued at above $10 million per spouse. If you expect to pass away with an estate valued at above $10 million, then you do need trust. In your case, a complex set of trusts can be created to minimize these taxes, but it is unlikely that estate taxes are avoidable altogether.
A living trust does not necessarily give beneficiaries their inheritance faster. Even with a living trust, an estate tax return must be filed (if the estate is worth more than the current estate tax exemption amount) and bypass trusts must be funded. Receiving inheritance from a trust may take a long time in these large estates because a closing letter from the IRS is usually needed before the beneficiaries receive their full inheritance.