7 common myths about trusts

Myth 1: "Trusts are only for the wealthy."

Reality: Trusts are versatile tools that can benefit individuals at all wealth levels. They provide structure, control, and protection for a wide range of financial situations. For example, anyone can use a Revocable Living Trust to pass assets on to inheritors without going through probate, thus saving time and money.

Myth 2: "Once assets are in a trust, I lose control over them."

Reality: This depends on the type of trust. A revocable living trust allows the grantor to retain control and amend the trust as needed. Even some irrevocable trusts can be drafted with provisions that retain certain benefits or income for the grantor.

Myth 3: "Setting up a trust is too expensive."

Reality: I call this a “partial myth.” There are many trust companies out there locking in clients to high fee structures. For example, I often see companies that provide combined legal and fund advisory services, and they charge between 1% and 2%.

I advise my clients against these types of structures. These advisors are often seeking to lock in a high-fee client for life. It can be challenging to change your trust advisor and administrator after the fact, meaning it is especially important to do your diligence first.

Instead, it is very much possible to set up a trust for a low price. There are lawyers who even charge flat fees of just $3,000 for a Revocable Living Trust and $15,000 to $20,000 for a full complex estate plan. At Toups Capital Advisors, we strive to help you set up trusts for the lowest costs we can find.

Myth 4: "Setting up a trust is too complicated."

Reality: Trusts can seem scary and complicated. At Toups Capital Advisors, we work to understand your needs and develop the simplest trust that can meet them. We believe complexity is cost, so we always work to find the simplest solution that meets your goals.

Myth 5: "Trusts are only useful for avoiding probate."

Reality: Probate avoidance is a significant benefit, but as we've discussed, trusts can be used for a variety of other purposes such as tax planning, asset protection, and providing for special needs beneficiaries. Check out our previous post about possible uses of a trust. 

Myth 6: “I’m young, so I don’t need a trust”

Reality: Trusts have so many uses beyond estate tax planning. They can be used to manage taxes during your very lifetime. For example, a NING trust can reduce income taxes. An upstream basis trust can eliminate a large capital gain on an investment.

Myth 7: "Trusts are too rigid and inflexible."

Reality: While some trusts (like irrevocable trusts) offer limited flexibility, others (like revocable trusts) provide significant control and adaptability. Moreover, many trusts can be tailored with specific provisions to match the grantor's unique needs and circumstances. Often, we can set up a trust with flexibility in one important area while accepting rigidity in another.

Conclusion

Trusts are versatile and powerful tools that can serve a wide range of financial planning needs beyond traditional estate planning. They offer benefits such as asset protection, tax optimization, and the ability to manage and direct your assets precisely according to your wishes, both during your lifetime and after.

Understanding the different types of trusts and their applications can help you make informed decisions about your financial future. Whether you aim to protect assets from creditors, plan for the education of future generations, or support a charitable cause, there's likely a trust structure that can help you achieve your goals.

Consulting with a financial advisor or estate planning attorney can provide tailored advice and ensure that your trusts are set up effectively to meet your objectives. In future articles, we'll delve deeper into specific types of trusts and explore case studies showing their practical applications in various financial planning scenarios.

Next Steps

If you think one a trust might be right for you, contact us! At Toups Capital Advisors, we are fee-only fiduciaries who don’t make any money from commissions on the financial products we recommend, unlike many advisors and some large banks. We always put your financial well-being first. Initial consultations are always free.