My answer may surprise you: Not as often as you think. 🙂
If you have not read my post Do I need a Will or a Trust, you should because I give considerable background for you to fully understand this post. Click the highlighted title above to read that post first.
For this post, when I say “trust” I am referring to the very common and typical Revocable Living Trust that you create, you control and you benefit from. There are other trusts but those are covered in other posts.
So, we discussed when the Payable on Death doesn’t work. It is in those situations where a trust is truly needed. Many go into an attorney’s office thinking they need a trust. In many attorney’s office, they will get a trust regardless of whether they need it or not. My dad used to say “as a kid, we took a bath once a week if we needed it or not”. I hope he was kidding because I’m pretty sure most kids need a bath at least once a week.
However, not everyone needs a trust. A trust is needed when:
- the Payable on Death or Beneficiary Designation of assets doesn’t work. A trust is needed when you want to do an easy unequal distribution of assets to the heirs.
- You want to protect the inheritance from lawsuits or from the spouse of the heir.
- You want to make sure a percentage of the estate goes to a charity
- You want someone else to control the money for the benefit of an heir such as “spendthrift” child or a minor child.
- This is not an exhaustive list but the most common issues I see.
How does a trust work? A trust is a legal entity that can own property. I like to think of a trust as a briefcase. You actually transfer ownership of your assets and put them into the trust or the “briefcase”. You don’t own the assets anymore and that is how it avoids probate.
Remember, probate is for those items that are stuck in your name at the time of your death. This fixes the “name” issue. The assets are owned by the trust, not you.
The trust doesn’t die with you. It continues to live.
When you create the trust, your assets are now “in the briefcase”. Someone has to be in control of the briefcase and that is a Trustee. That is you while you are alive and competent. The Trustee transfers to someone else that you name when you are incompetent or when you pass away. It happens automatically.
Someone has to benefit from the trust. That person is the beneficiary and that is you until your death. When you are incapacitated, you are still the beneficiary. At your death someone else that you name in the trust becomes the beneficiary. That is usually your heirs or a charity.
The biggest advantage of this trust is that you are able to have someone handle most of your affairs when you become incapacitated and upon your death automatically with no court intervention.
Also, you can put “strings” or conditions on the money you leave to a child and control the percentage they or a charity get. We can protect the money for a child that is likely to be sued, likely to get a divorce or is a spendthrift by leaving their share in another trust created by your trust. Pretty cool, huh?
I really suggest that if you think you need a trust after reading this, you probably do. I then suggest that you meet with an attorney that is not only experienced in Estate Planning but also has a knowledge of Medicaid and long term care because these things are very related to each other. Meeting with an attorney that only focuses on estate planning may not take into account the need for long term care and the attorney that “also does trusts” will probably have no idea about the long term care issues. Get the advice of a good elder law attorney like a Certified Elder Law Attorney.
You can find a Certified Elder Law Attorney here.
I hoped this helped. I’m pretty adamant about clients getting what they need and not overspending on legal documents they don’t need. I hope these two posts will save you some money and give you peace of mind.
If you still have questions, I would really recommend you get the “whole picture” of how all of this fits together in one very easy format that you can watch as many times as you want and for as long as you want. It is my proudest work so far. I have created an online course that covers all of the major issues of Elder Law in video format that people are loving. If you want the whole picture, I really suggest you get my course on Elder Law made perfectly for seniors and for the their children.
Get the Course here: Todd’s Course