People in Rochester, New York who create estate plans often choose to use revocable living trusts as a cornerstone of their plan. While these trusts are excellent tools that nearly everyone can benefit from, they do have some downsides, or, at the very least, lack specific benefits. Let’s take a look at living trusts and how they are not suitable for all of your estate planning needs.
Living trusts are excellent at ensuring privacy, eliminating probate requirements, and giving you peace of mind in knowing that someone will be there to manage your property should you become incapacitated. Yet living trusts are not suitable if you are interested in protecting your assets against creditors.
For example, if you own a sole proprietorship and someone sues your business, you are personally liable for any judgment. Even if you have retitled all of your property into a revocable living trust, this won’t protect you from creditors seeking to collect on a judgment.
Income and Estate Tax
Living trusts are also not effective at reducing your tax exposure. Retitling your property under a living trust will do nothing to help you avoid either income or estate taxes. Even though the trust owns the property, you will be responsible for paying any applicable income or property taxes while you are alive. After you die, your estate property will still be subject to any state or federal estate, gift, and generation-skipping transfer taxes that might apply, although married couples may use a living trust to avoid or minimize those taxes.