Are you wondering whether you should have a trust as part of your well-rounded estate plan?
(Yes, I am an attorney, but, no, I am not your attorney. Nothing in this post constitutes legal advice or creates an attorney-client relationship. This post and this site are merely educational, informational, and entertaining.)
For some estate planners, every estate plan includes a trust in some form or fashion. However, I believe that your estate planning goals can often be met in a myriad of ways.
For some a trust is the only way to go while for others, some other non-probate transfers might be right for them.
To read more about why you might want to consider avoiding probate, check this out.
WHAT IS A TRUST?
First, let me be extremely clear. There are as many different kinds of trusts as there are different kinds of birds…well…that might be a slight exaggeration. However, no two trusts are exactly the same, and there likely exists a trust that is perfect for your particular situation.
From GRATS to QITs to CRTs, trusts and their acronyms run the gamut.
But, from a 10,000 foot view, what is a trust?
A trust is simply a contract written to govern the assets that are titled to the name of the trust/trustee. The trust is the combination of your wishes written down and the culmination of those wishes.
Every trust has to name a person who is responsible for managing the assets belonging to the trust: the trustee.
The trustee is then responsible for carrying out the trust terms.
Thus, the trust is merely the bucket for holding a mix of assets whether those are real estate investments, mutual funds, or other accounts or property.
WHY IS A TRUST PART OF AN ESTATE PLAN
To put it bluntly, unlike you, the trust doesn’t die. The trust continues on long after your death if you so choose. Thus, the management of the assets belonging to the trust can continue to go on even after your death.
Therefore, for many people, a trust is a great way to continue investing, operating a business, owning property, or other actions for generations to come.
But, let’s say you aren’t a Vanderbilt, and you don’t have a railroad empire to transfer. Could a trust be right for you?
HOW DO I KNOW IF A TRUST IS RIGHT FOR ME?
Here are just some of the reasons that a trust might be right for you:
1. You own property in multiple states:
Do you own your personal home and a little bungalow on the beach down south too? Did you purchase an interest in mineral rights in Pennsylvania. Have you inherited investment property in Albequerque?
If you answered yes to any of these, then you likely own real estate in more than one state.
The laws in the United States generally require that you go through probate (read more about what probate is here LINK) in any state where you own real estate. Thus, if you own a home in both Indiana and Florida, then your heirs will have to go through probate in both states.
If you have a trust on the other hand, the property continues in the trust. The trustee then administers and owns the property according to the trust terms.
The beauty of leaving a trustee in charge of your assets, is that you don’t have to have a court to decide whether or not you can sell your out-of-state assets. Instead, if the trustee sells the out-of-state property after your death and distributes it to the beneficiaries you named in the trust, then he can do so without court intervention.
While some states have quicker probate processes for ancillary administration, probate is generally quite lengthy. Further, I don’t know of any state that will allow you to completely forego some sort of process. This means that you must have probate in as many states as you own property.
WIthout a trust or other non-probate transfer mechanism, you will open probate in both states. Thus, you will have to pay for attorneys and filing in both states.
In many, if not most cases, having to open 2 probate estates in 2 different states will be far more expensive than setting up the trust at the outset.
2. You value your privacy.
Did you know that when you open probate, your will becomes public record?
Your gifts, your wishes, your family, and your property all become available for the common person to peruse as he wishes.
If, on the other hand, you have a trust, your trust and its administration never have to be public record.
For the most part, if you don’t want the world to know what you own a trust preserves your privacy. You can keep secret your value, your beneficiaries, and what you own. Trusts are a great way to protect your own personal wishes and your family’s personal privacy.
3. You want to transfer your property with restrictions and caveats
After years of completing family estate plans, I have heard a lot of strange requests. Some more creative than others. Some testators create wills that are quite complicated and require flow charts!
If you want to add complex restrictions or caveats to your gifts, then you might consider a trust.
For example, perhaps you want to leave a large gift to each of your grandchildren who complete a four-year college degree. In that case, you would need to set aside an uncertain amount of money to be managed according to some very specific terms during your grandchildren’s lifetimes.
Your trustee would be able to react to circumstances of after-born grandchildren, four-year college equivalents, and even low funds in the trust.
Gifts like this would become nearly impossible to give under a Last Will and Testament without a coordinating trust.
4. You have a complicated distribution
Or, maybe you don’t have restrictions or conditions in your gifts but instead you have a complicated distribution.
Complicated distributions where gifts are made among charities, scholarship funds, family members, or maybe even business colleagues are a good reason to have a trust.
Your attorney can form a trust segments your estate into different amounts or different gifts.
Your trust could establish a scholarship fund for a local high school, promote charitable giving at local hospitals, and even provide for ongoing property management in one document.
On the other hand, maybe your complicated distribution originates out of death or divorce.
Perhaps you have children from multiple marriages or children who have predeceased you. In those events you might want to be very specific about which children receive which specific assets or whether spouses/grandchildren are included.
A trust grants you the ability to be very flexible in how and what you give. Further, a trust gives you the ability to make distributions over a matter of time –maybe even a period of years — unlike probate which should be wrapped up in a year or less.
5. You have a large and extensive estate.
Finally, among a host of other reasons, you might want to consider a trust if you have a large or considerable estate.
Most people might believe this to be the number one criteria; however, simply having a large net worth does not necessitate transfer under a trust.
You may own millions of dollars of assets that can be passed by a simple transfer on death deed.
Or, you might have millions of dollars in income-producing rentals that can be passed by an operating agreement.
However, if your estate isn’t quite so simple and straightforward your net worth might be a reason to have a trust. Owning millions of dollars or even hundreds of thousands of dollars of different types of assets are a reason to consider having a trust.
Having a trust allows you to go ahead and change the titles, ownership, beneficiaries, etc. to the trust during your lifetime. If you change the title during your lifetime, then your trustee can more easily move those contracts at your death.
In general, revocable trusts do nothing to restrict your use of the assets during your lifetime. However, your trust may be a great blessing to your children when the time comes to collect, count, and distribute your assets.
6. You want to qualify for state benefits for long-term care.
A variety of trusts also provide a means for moving assets out of your name so that you can qualify for state benefits for long-term care.
Programs like Medicaid require that you own almost no assets and have almost no income.
A trust might be an extremely useful tool in your estate plan to protect large assets or even all of your assets against long-term care costs.
For example, you might know that you will keep a certain, large income-producing piece of real estate in the family for generations (like a farm or a family homestead). Moving that asset to a very specific type of trust removes that asset from your name and excludes it from your estate if you should need long-term care.
What kinds of trusts will accomplish this goal is beyond the scope of this article or even this site. Please, always, consult with an attorney about your particular circumstances when you are considering long-term care planning.
YOUR ESTATE PLAN SHOULD BALANCE YOUR INDEPENDENCE AND YOUR GOALS
Further, keep in mind that estate planning is often on a continuum between autonomy and protection.
The more that you want to shield your assets and estate from government overreach, the more control you will likely need to give up over your assets. And, visa versa, the more control you want to retain, the less protections you will have against taxes or long-term care coverage.
Are you wondering whether you should have a trust? Do you think that trusts are only for the fabulously wealthy or the generationally rich? Think again.
Trusts solve a myriad of problems from privacy to blended families.
As always, your particular circumstances should be reviewed by an attorney, but these are just some of the reasons that a trust might be right for you.
(To read more about how trusts and other tools can protect minor children, check this out.)
Do your friends, family, business, and neighbors a favor and be sure to complete your entire estate plan with a trusted professional in your area.