Based on my conversations with various individuals, it appears that there are some common misconceptions about what a revocable living trust can and can not do. I’d like to take a moment to explore a couple of the most common myths that give rise to these misconceptions.
Myth 1: “If I put all my assets in a living trust, I can avoid paying my creditors.” To the contrary, placing one’s home, fi nancial accounts or other assets in a revocable living trust does not create a shield against the claims of creditors. Under the law, a trust must have a purpose that is neither illegal nor against public policy. A trust set up to defraud creditors will not be enforced.
Myth 2: “Once I create a living trust, everything I own is automatically covered by the terms of my living trust.” A living trust can only dictate what happens to property that has been placed in the living trust. After the living trust is created, a second and equally important step must be taken -- that of transferring assets into the trust. A person must actually go through the process of re-titling assets from the individual’s name into that of the trust, such as having a new deed drawn up for real estate and changing the beneficiary designations on bank accounts, brokerage accounts, IRAs, etc. if consistent with the overall design of the trust. This process is called “funding” the trust. An unfunded trust is just an expensive piece of paper.
Though a living trust may not be able to address fi nancial challenges you may be facing right now, it can certainly be of benefit to you. It is a vehicle for securing centralized and uninterrupted management of your assets while reserving ultimate control through the power to amend and revoke the trust. It can be used to manage your property during your lifetime and becomes especially useful if you become disabled or are otherwise unable to handle your fi nancial affairs yourself. It can also be used to transmit property upon your death without probate to benefi ciaries you select. Finally, it can be used to manage your property after your death so that your benefi ciaries must abide by terms of distribution that you have dictated.
© 2020 by Marlene S. Cooper. All rights reserved
You may obtain further information at the website www.marlenecooperlaw.com, by e-mail at MarleneCooperLaw@gmail.com, by phone at (626) 791-7530 or toll free at (866) 702-7600. The information in this article is of a general nature and not intended as legal advice. Seek the advice of an attorney before acting or relying upon any information in this article.