A trust is a contract, or a relationship, between the person who makes the trust (Grantor) and the person who manages the trust (Trustee). These are often the same person, initially. I make a trust (Grantor), and I manage the trust while I’m alive and competent (Trustee). The Trustee manages the assets that are in the trust for the benefit of the beneficiaries, who are people the Grantor chooses to receive assets that are in the trust. (I, as Trustee, manage assets in the trust such as investments, insurance, real property, etc., for the benefit of my children who are my chosen beneficiaries.)
Why have a trust?
The premier reason for a trust, in my opinion, is to maintain control from the grave. For example, if you have assets such as a house and retirement plan, and if you have a minor-age child when you die, your child will inherit everything–value of your house, retirement, assets—when he or she turns 18. It is likely that an 18 year-old person will mismanage (likely deplete) that amount of money. If you had died with a trust, however, the trust could have reserved money for college, would distribute money at certain staggered intervals (my clients typically choose a portion distributed to the child at 25, then 30 and then 35).
Benefits of a trust
Beyond “control from the grave” for the benefit of children, however, are other important benefits to a trust.
- Trusts do not have airtight privacy control but, as private contracts, are typically private. This is the opposite of probate and guardianship proceedings, which are both public matters. With a trust, you can avoid both probate and guardianship.
- Avoid probate if you own property in other states (ancillary probate). For snowbirds and others who own homes and other property in another state, if the property is held by (deeded or titled to) a trust, then you do not have to have ancillary probate. If you died owning a condo in Florida, you would have to hire a Florida attorney to probate your Florida property, unless the condo was held by the trust.
- A trust can serve as ‘contingent beneficiary.’ If you have a life insurance policy and name the trust as the beneficiary, then at your death the payout is to the trust which then manages that money according to the terms you set. If the payout goes directly to a child, the money could be depleted, or attached by creditors (your child’s divorcing spouse, or a victim of car accident your child/beneficiary caused, etc.).
- Protect assets from surviving spouse. Assets in a trust are not part of a probate estate, which means that they are not subject to a surviving spouse’s right under law to elect against the will. A trust reduces the chances that a surviving spouse can change the deceased’s estate plan after death, which can be important in blended families.
- Protect assets from creditors of Grantor’s estate. Assets in a trust are not part of a probate estate, and creditors generally cannot get to those assets. If I died with creditors wanting to get to my estate’s assets, the creditors would not be able to get to assets in my trust. Of course, there are some exceptions to this.
- Control the disposition of your assets. This benefit is similar to what I describe in the “Why Have a Trust?” paragraph above, but goes deeper. You can determine the terms of the trust. You can decide on whatever terms you want, except those terms that are against public policy (“nothing to my daughter if she marries someone outside of her race,” or “at my death dump the waste from my chemical company into the nearest river”). Some terms my clients have chosen include distributions to a beneficiary with addiction issues conditioned on passing drug tests, certain incentive distributions for a beneficiary pursuing higher education or receiving certain grades, etc. You can leave assets to a disabled beneficiary without jeopardizing that beneficiary’s government benefits (typically Medicaid and SSI). You can provide funds for the down payment of beneficiary’s first house or a car upon graduating from college. A trust can do most everything for a beneficiary that you would want to do if you were alive.
Trusts do cost substantially more than wills. The cost of will plans is in the hundreds of dollars, where the cost of trust plans often starts at about $1,200. However, probating an estate (with only a will) will likely cost more than having a trust plan prepared.
A trust is not for everyone. I highly recommend trusts for people with minor age children, blended families, and for those who wish to maintain control over the disposition of their assets after they die.
To find out if a trust is for you, email me at email@example.com.