What is a Trust and Why do you need it?

A common question an estate planning attorney is asked, by clients, is “How do I figure out if I need a trust instead of a just will?” Many people assume that Revocable Living Trusts are just for wealthy people, but the benefits that they can offer to someone with even minimal wealth are significant. Here are some factors to consider when deciding if you need a Revocable Living Trust instead of just a will. 

1. Mental Disability

Regardless of your net worth, and particularly if any of your assets are titled in your sole name, then you should consider a Revocable Living Trust for mental disability planning.

2. Minor Beneficiaries

Often the largest asset young parents have is either a life insurance policy or retirement account,

if the young parents later divorce and one of the parents want to name the minor children as the primary beneficiaries or if both parents die while the children are still minors. 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 18. Thus, in these situations, the parents should consider setting up a Revocable Living Trust and naming the trust as the primary or contingent beneficiary of the life insurance or retirement account.2 That way the Trustee will be able to accept the funds instead of a court-supervised guardian. Also, the parent can dictate in the trust when the children will receive their inheritance, such as age 25 or 30 instead of 18.

3. Single People

Anyone who is single and has assets titled in their sole name should consider a Revocable Living Trust. The two main reasons are to keep you and your assets out of a court-supervised guardianship and to allow your beneficiaries to avoid the costs and hassles of probate.

4. 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 children or grandchildren, then you should consider establishing Revocable Living Trusts to ensure that each spouse’s estate will go where he or she wants it to go outside of the probate process.

5. 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 (for example, you can see what the Last Will and Testament of actor James Gandolfini says). Contrast this with a Revocable Living Trust, which is a private contract between you as the Trustmaker and you as the Trustee.10 Unless your beneficiaries have to go to court over something written in your Revocable Living Trust agreement (like Michael Jackson’s heirs), 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. 

6. Real Estate Located Outside of Your State

If you own real estate in more than one state, then you’ll need 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.

One Last Thought: Trusts Don’t Work If They’re Not Funded

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.