If an Attorney, Financial Planner or other advisor confidently says you need a Trust before understanding your personal, family, and financial circumstances, ask the important question of “Why?” If they cannot provide an answer with credibility, consider finding different individuals to advise you. Establishing a Trust can be an important part of one’s estate plan, but in many circumstances, Trusts are not needed and do not improve the end result of the estate plan. Often, people pushing Trusts are interested in “upselling” you on an estate plan or financial product you do not need. Beware of high-pressure sales tactics to establish a Trust, due to your age or other factors. If you are a high-wealth individual, parent of a minor/special needs beneficiary, or partner in a blended family, a Trust may serve you well as a valuable part of your overall estate plan.
COMMON TYPES OF TRUSTS
Before determining whether or not you need a Trust, it’s helpful to understand some of the most common Trusts that people establish, including:
- Revocable Trust – Also called a “Living Trust”, a REVOCABLE TRUST CAN BE AMENDED OR REVOKED DURING LIFE and can provide benefits as to management of your assets during your life if you become incapacitated. Funding a Revocable Trust during one’s life can also result in fewer administrative tasks to accomplish after death, especially if you own real estate in a “burdensome” state such as Florida or New York.
- Irrevocable Trust – An Irrevocable Trust cannot be altered once it is established. People often create Irrevocable Trusts during life in order to save on estate taxes, plan for Medicaid, or set aside assets for a beneficiary’s education. Assets that are transferred to an Irrevocable Trust cannot be used by the donor.
- Testamentary Trust – A Testamentary Trust is a kind of Irrevocable Trust that is established under one’s Last Will & Testament. This kind of Trust goes into effect upon death, often for the purposes of benefiting a surviving spouse or younger beneficiaries.
BENEFITS OF TRUSTS
HIGH-NET-WORTH INDIVIDUALS AND MANAGEMENT OF COMPLEX ASSETS
With the recent passing of Lisa Marie Presley, there has been a lot of buzz about her estate plan, particularly with what went wrong. While a Trust was necessary for her estate and her father’s estate, a majority of people do not need a Trust. Why? High-wealth individuals often have an abundance of assets – real estate properties, businesses, and investment funds – that are complex to manage. Most Americans have an estate that does not contain this complexity. Trusts, typically Revocable Trusts, offer distinct advantages in terms of management and minimizing involvement of local courts. Overall, the benefit of establishing a Revocable Trust simply is not significant for most people.
Regardless of your status, it’s critical to choose the proper Trustee, as well as secondary or successor Trustees, to steward your Trust, ensuring it’s properly managed. The Presley family failed to do this, and as a result, the resulting litigation sent family members to a courtroom, instead of allowing them to grieve for the loss of a loved one.
SPECIAL NEEDS AND YOUNG BENEFICIARIES
Another helpful use of a Trust is when it comes to managing assets for young or special needs children. Special needs individuals often have income/asset limitations in order to qualify for government benefits, and receiving an inheritance outright will often disqualify them from these worthwhile programs. If done properly, putting assets into a Special Needs Trust will allow the individual to utilize the Trust assets without losing benefits they are otherwise entitled.
Many parents of minor or young adult beneficiaries are concerned that the receipt of a significant inheritance will lead to bad outcomes. Leaving assets in Trust subject to age restrictions is important in helping make sure assets are available for education, healthcare and other needs while protecting assets until the beneficiary is hopefully mature enough to manage the assets on their own.
SECOND MARRIAGES OR BLENDED FAMILIES
Lastly, and similarly to creating a prenuptial agreement when entering a second marriage, a Trust can also be helpful to ensure your assets and your spouse’s assets pass to the correct beneficiaries. A promise to “do the right thing” as to one’s estate plan is often not legally binding, and the surviving spouse can leave all of the marital assets to their children and disinherit the first-to-die spouse’s family. Putting assets in Trust at the first death can protect the interests of those family members while allowing the surviving spouse access to Trust assets for support and healthcare needs.
A TRUST YOU CAN TRUST
Do you need a Trust? The answer might be a solid “Maybe,” and it’s important to understand why and how a Trust should be considered as a part of your overall estate plan.
Connect with one of our experienced Estate Planning & Trusts attorneys to help create an estate plan that helps protect you, your family, and what matters most.
