It was recently reported that prior to his death, Philip Seymour Hoffman rejected the advice of both his attorneys and accountant when planning his estate. Instead of leaving his estate to his children, Hoffman left his entire $34 million estate to his long-term girlfriend and mother of his kids. He told his accountant that the reason behind this was that he did not want to have “trust fund kids” or the stigma that goes along with it. Sadly, his poor estate planning decisions leave his estate open to a massive tax bill and other potential problems in later years.
Additionally, Sting also made news in the estate planning world recently when he announced that he did not want his six children to have trust funds, either. He told a reporter that he felt like a trust fund would be “an albatross around their necks.” Sting said that if they needed financial help he would give it to them, but he wanted them to have their own work ethic.
While both Hoffman and Sting had good intentions regarding their wealth and children, both superstars perpetrated common myths held about trust funds that simply are not true. There are many different types of trusts, each with their own rules and standards that you can set for them. Here are some of the most common misconceptions that people have about trust funds and estate planning:
Trust funds create spoiled and lazy children.
One of the most common misconceptions about trusts is that the children who inherit them are spoiled and lazy. However, trusts can be used creatively and for whatever purpose the creator wants. In Hoffman’s case, he wants his children to be introduced to culture and fine arts. Sting will help his children if they need it, but he wants them to work on their own. Trusts can be set up to accomplish both of these goals. A trust can be set up only for only cultural and artistic purposes, or it can be set up so that it can only be accessed for educational, health, or financial emergencies.
Trusts are only for rich people.
Trusts are for anyone who wants to avoid the hassles of probate court. A trust also allows the creator to control the estate legacy from beyond the grave, and it avoids the probate court from making decisions about the estate that may go against the final wishes of the testator.
If I start a trust then I lose control.
A revocable living trust means exactly that – they can be changed, amended, or canceled altogether at the creator’s will as long as he is still competent. Furthermore, the creator can establish how, when, and if the assets in the trust passes and to whom.
I do not need a trust because I already have a will/joint accounts/other estate planning documents.
Wills and other estate planning documents must go through probate court, whereas a trust and all of its assets do not. In addition, trusts have tax benefits that other estate planning options cannot get. Trusts can help your children avoid getting double taxed for assets.
If I start a trust everything must go to my children.
Both Hoffman and Sting seemed to be under the impression that a trust is meant only to pass money to children, but that is not the case. A trust can be set up for anyone or any entity. That means that other family members, friends, charities, trusted employees, and others can all be beneficiaries of a trust.