A Few Warnings about Trusts

By Julie Kreutzer

Living Trusts and other sorts of Trusts are quite popular as a means of avoiding taxes and probate.  However,  be aware of these issues:

• If the goal is to avoid inheritance tax, then the Trust must be an Irrevocable Trust because if it is just a Revocable Trust then the person creating it still has access to the property and are still the owners as far as taxing entities are concerned and whatever assets in the Trust will be taxable to the creator during their lifetime. Creating an irrevocable trust and putting property into it means the client doesn’t own it anymore so they aren’t taxed.   However, Irrevocable Trusts can’t be modified or changed by your though in some instances your trustee can modify it.
• Do you need a Trust? Federal taxes are less of an issue for many given how high inheritance can go before there’s a federal tax. Meanwhile, some states like Colorado, don’t have an inheritance tax.  Also, probate in Colorado is straight forward, not particularly time consuming and provides a process for making sure all creditors are paid and beneficiaries receive their inheritance in a timely way.
• With a Trust, it’s not up to the estate planning attorney or the entity the asset came from to put assets into the trust. Once the attorney creates the trust, then clients need to be certain to effectively title the property so that it winds up in the Trust.  As an example, attorney creates living trust at which point,  client needs to remember to title accounts, cars, houses, etc. so that the Trust owns the property.  Sometimes there’s a disconnect where a Trust is empty or doesn’t hold all the property, which then requires probate unless someone else is a co-owner.
• Trusts have rules that Trustees need to follow. That means Trustees need to be given a copy of the trust and fully understand what they need to do to comply with the terms of the Trust. To many people create trusts and skip this step because they want to keep their financial matters private until their death, which then creates a legal mess later.
• Trusts require drafting just as Wills do. Typically, there’s a will plus medical documents, general power of attorney, etc.  Or there’s a Trust with the same documents. Some people have both a trust and will and related documents. The issue is whether the Trust provides a benefit that the Will doesn’t.  Consider, with a complicated Trust, whether it has enough benefit or if a Will might be less costly, even with probate.
• A Will requires the time commitment of drafting it and probate, which is a finite period. A Trust typically goes on for much longer, which results in more time and attention needed by the person setting up the Trust and the Trustees later.

All told, if you are not sure whether a Trust or Will or both fit your needs,  I’d recommend getting a free consult* to determine which documents best meet your needs.

*Colorado residents only – 303-417-0697 or email me at jkreutzerlaw@gmail.com