Do I Need a Trust?
Do I need a Trust?
A common question many estate planning attorneys are asked by clients is "Do I need a trust instead of a just will?" Many people assume that Revocable Living Trusts or any Trusts are just for wealthy people, but there can be benefits to someone with even minimal wealth which could be significant. Here are some factors to consider when deciding if you need a Revocable Living Trust or any Trust instead of just a will.
Planning for Mental Disability
Regardless of your net worth, and particularly if any of your assets are titled in your sole name, then you may want to consider a Revocable Living Trust or some kind of trust for mental disability planning. But beware, because not all Trusts are created the same. A well drafted Revocable Living Trust should contain provisions for determining your mental capacity outside of a court proceeding as well as how to take care of you and your finances if you do become mentally incapacitated. This will literally save you and your family thousands of dollars by keeping you and your assets outside of a court-supervised guardianship.
Planning for Minor Beneficiaries
Many times the largest asset young parents have is either a life insurance policy or a retirement account. Problems arise if the young parent’s later divorce and a parent wants to name the minor children as the primary beneficiaries or if both parents die while the children are still minors. So what will happen to the life insurance or retirement account? These funds will be placed in a court-supervised guardianship for the benefit of the minor until the child reaches age 18. Under such situations, the parents may want to consider setting up a Revocable Living Trust and naming the trust as the primary or contingent beneficiary of the life insurance or retirement account. That way the Trustee will be able to accept the funds instead of a court-supervised guardian. In addition, the parent can dictate in the trust when the children will receive their inheritance, such as age 25 or 30 instead of 18.
Planning for Singles
Any individual who is single and has assets titled in their sole name may want to consider a Revocable Living Trust. Two reasons are to keep you and your assets out of a court-supervised guardianship and to allow your beneficiaries to avoid the probate process. The minimum net worth necessary for a single person to consider using a Revocable Living Trust will vary from state to state. For instance, in Florida estates valued at $75,000 or less are considered small enough to be administered through a simple summary probate process. If the value of your assets is over the minimum threshold in your state, then a formal, time-consuming and costly probate administration will be required instead.
Planning for Couples in Second or Later Marriages
If you're in a second or later marriage and you and your spouse will have different beneficiaries such as your own children or grandchildren, then you may want to consider establishing Revocable Living Trusts in order to insure that each spouse's estate will go where he or she wants it to go outside of the probate process.
Keeping Your Estate Plan Private
A last will and testament that is filed with the probate court becomes a public court record that anyone can read. A Revocable Living Trust is a private contract between you as the Settlor and you as the Trustee. Unless your beneficiaries have to go to court over something written in your Revocable Living Trust agreement then the document should remain a private document that only the trustees and certain beneficiaries will be able to read after your incapacity or death.
Estate Planning for Real Estate Located Outside of Your State
If you own real estate in more than one state, then you may want to establish a Revocable Living Trust and deed the out of state property into the trust. Otherwise, your family may be faced with two separate probate estates - one in the state where you live, and a second in the state where your real estate is located, which is referred to as “ancillary probate”.
Some Last thoughts
Of course, if you find yourself in need of a Revocable Living Trust, then be sure to fund your assets into your trust and update your beneficiary designations, otherwise your trust won't be worth anywhere near the money you spent on it.
Also, Revocable Living Trusts are one of many estate planning tools and are not for everyone, and some case your goals and objectives maybe accomplished through the use of other techniques.