Do You Need a Trust? Perhaps to Your Surprise, the Answer Is Probably ’Yes’

Clients often ask why they need a trust and not just a traditional last will and testament. Many are single, have only a young child, or have no assets. Most people assume that revocable living trusts are just for the wealthy, but the benefits that they can offer to the average person are significant.

If you fall into one of the following categories, you can get great benefits from a revocable trust:

• You are single;
• You have minor children or minor beneficiaries;
• You need to plan for an individual with a special need;
• You are remarrying and blending families;
• Your estate is potentially taxable; or
• You want to avoid probate

If any of the above apply to you, a trust may be a wise planning tool.

Understanding how a trust plays into the planning process is important when evaluating its benefit to you. To begin, probate is the legal process where a court oversees the distribution of your assets and the payment of your debts upon your death, pursuant to the terms of your will. Probate is a notoriously slow, costly, and public process. Although many states provide for an expedited summary procedure to probate a small estate, usually if you own real estate at the time of death, the process does not apply. Generally speaking, anyone who would not qualify for the summary procedure would be a good candidate for a trust.

When using a trust in your planning, assets are transferred to the trust while you are alive. When you die, the assets belong to the trust, not the decedent; thus, they are not probatable assets. Instead of the costly, time-consuming, and public process of probate, the terms of the trust will dictate the distribution of the assets.

A single person who has assets in trust often uses it for the lifetime benefit of avoiding a guardianship or convervatorship in the event they become mentally or physically incompetent. The person in control of managing the assets in accordance with the term of the trust, called a trustee, can use the trust assets for the incompetent person, without the need for a court process to assume the authority to do so. Upon death, the remaining assets will distribute in accordance with the trust terms to any heirs.

Married couples often assume that, because they jointly own property, they can avoid probate. This is not always the case. Yes, upon the death of the first spouse, the assets will pass to the survivor without a need for probate, but if there was a simultaneous death, or at the death of the second spouse, probate would be required. Trusts are also used by married couples to take advantage of the state and federal estate-tax exemptions available to wealthier clients. This is accomplished by setting up AB or ABC Trusts and then dividing the couple’s assets in approximate equal shares between their respective trusts, (one trust for each spouse.) By doing so, the married couple can maximize the estate tax avoidance by taking advantage of each person’s individual exemption, while still making the assets available during the life of the surviving spouse for their benefit, without putting the assets under their ownership, and thereby compromising the exemption.

Blended families or later-in-life marriages also are benefited by the use of a trust, because the trust can protect the inheritance of children from first marriages or prior relationships. When planning, assets can be put into trust, and a disproportionate division of the assets can be included in the trust’s terms. This accomplishes the goal of carving out specific assets for specific people, in differing amounts and manner of distributions, without exposing the estate to a potential contest, which would be likely if such a division was provided for in a last will and testament.

Minor beneficiaries are also a concern in estate planning, and utilizing a trust can prevent putting assets into a minor’s hands. Most states prohibit minors from taking direct ownership and control of inheritances and/or assets until they reach the age of majority, which is generally 18. However, in the absence of planning, at age 18, the now-adult beneficiary can access the funds and use them at their own discretion. As most 18-year-olds are not likely to exhibit financial responsibility, trusts can be used to hold the assets for the benefit of a minor and direct the distribution of the money to the heir at ages and in amounts predetermined by the client when creating the trust. In this way, the money can be made available to benefit the minor heir for their health, welfare, and education, for example, without putting it directly in their hands. Then, in the future, at a later age, some, part, or all of the money can be distributed outright to them, when then are presumably more mature and likely to act responsibly.

Individuals at any age and in any station of life who have a disability can be protected by the use of a trust. Assets in a trust can be restricted by the terms and conditions so that they can be used for the benefit of the disabled person without vesting the ownership of the assets in the disabled person. By not becoming the owner of the assets, the disabled person can still qualify for any state or federal benefits to which they may be entitled. The elderly, incapacitated, or individuals with a special need can all be beneficiaries of a trust so long as the appropriate qualifying disability language is included in the trust, without disqualifying them from other entitlements. Trusts also allow for a disabled person to be provided for after the death of the creator of the trust.

Clearly, the benefits of a trust are far-reaching and apply to most nearly everyone. Trusts are more common then ever and are not costly. When balanced against the costs associated with a probate of an estate, it is clear to see that trusts are affordable, useful, and effective estate-planning tools. Trust me!

Julie A. Dialessi-Lafley, Esq. is a partner with the law firm Bacon Wilson, P.C. She focuses her practice in business, real estate, estate planning and administration, elder law, and family law; (413) 781-0560; jdialessi-lafley@baconwilson.com;facebook.com/baconwilson