Living Trusts: The Myths, the Benefits and the Rest
Be aware of some misconceptions about living trusts:
A living trust will help you avoid estate taxes.
There are ways to reduce your federal and state estate taxes, but a living trust isnât one of them. If your estate is large enough to potentially expose you to estate taxes, consult with an estate-planning attorney about strategies to reduce the size of your estate.
The federal estate tax threshold is $12.06 million in 2022 ($24.12 million for a married couple), but unless Congress acts, the exemption will drop to $5.5 million in 2025. In addition, 12 states and the District of Columbia impose an estate tax, and some have much lower exemptions than the federal level.Â
If you have a living trust, you donât need a will.
Itâs unlikely that youâll include everything you own in your trust, and you may add assets between the time you draw up your living trust and your death. Your attorney will likely recommend a document known as a âpour overâ will, which basically transfers to the trust anything youâve excluded.Â
In addition to a will, youâll need other estate-planning basics, including a financial power of attorney and a health care proxy. If you have minor children, youâll also want to name a guardian. See below for a checklist of documents you should include in your estate plan.
Documents You Need for Your Estate
Keep these estate-planning documents in a secure place, such as a home safe or safe-deposit box, and make sure your loved ones know where to find them. You may also want to give copies to your attorney and individuals who have been designated to play a role in your estate.Â
– Financial/durable power of attorney. This gives an individual the authority to manage your money if you become incapacitated.
– Medical power of attorney. This names an individual who is authorized to make health care decisions on your behalf if youâre incapacitated.
– Directive to physicians/living will. This document allows you to specify the kinds of treatment and long-term care options you prefer.
– Funeral arrangements.
– Last will and testament.
– Any trusts you created, including your revocable living trust.Â