Do you need a trust?

As a wise consumer, you will soon be meeting with an attorney to discuss an estate plan and when you do it is likely you will discuss the use of a trust. A living trust is a legal arrangement you establish during your lifetime to protect assets and direct distribution after your death.  It is an estate planning tool that seeks to provide family members and beneficiaries an escape from a lengthy, public, complex, and sometimes costly, probate administration process.

A living trust has two primary benefits. First, assets transferred into a trust generally avoid probate administration.  To some, the avoidance of probate administration is the critical benefit to creating a trust.  Second, by creating a trust, you may direct and control your assets after you are deceased.  Control of your assets when you are no longer around is an especially important consideration if your heirs are minor children, suffering from alcohol or substance abuse issues, adults with special needs, or they lack financial responsibility or common sense.

Once a trust is complete, transferring assets into the trust or “funding the trust” requires some work and potentially some expense so professional assistance from an attorney is strongly advised.  It makes sense that you should strive to transfer all real property and personal property to your trust upon its completion.  But some accounts should never be transferred into your trust while you are alive, even if they comprise the bulk of your estate. They include assets in your retirement accounts, such as your 401(k) plan, IRAs and tax-deferred annuities. Health savings accounts and the less-common medical savings accounts, which allow you to take tax-free withdrawals for medical expenses, should also be excluded from your trust.  By transferring any of these assets to your trust while you are alive, the IRS may treat the transaction as a taxable event or distribution (change of ownership) and you may be caused to pay income taxes on the entire amount.

However, your attorney may inform you that a living trust is not necessary at all, depending on your age, the value of your estate, and your marital status. While a trust is beneficial to some, to others, it has drawbacks.  Establishing a living trust takes longer than the creation of a Last Will & Testament.  It involves more routine maintenance and attention.  And it may be harder to amend compared to a Will. While some online resources allow you to create your own Will, it is best to use an attorney when establishing a living trust so costs can easily be $2,000-$5,000 or more depending upon the document’s complexity.

Consider the following factors and decide if you should establish a living trust:  (1) Age – Because of the cost and energy of creating and maintaining a trust, it may not be right for you if you are under the age of fifty and relatively healthy. Furthermore, recent techniques in avoiding probate are becoming increasingly accepted as the standard; (2) Value of your estate – The more valuable your estate, the more you need a trust.  Wealthy clients always have more assets at risk in probate.  Those clients may also be subject to the estate tax and a trust can shelter some of that wealth from taxation.  The types of assets that comprise your estate also makes a difference. Small businesses, rental properties and other tangible investments may benefit from a trust so that they are not encumbered during probate administration; and (3) Marital status – Married couples who leave everything to one another may have less of a need for a living trust, especially if all assets are owned jointly.

There are nearly as many reasons to have a trust as there are for not having a trust.  Talk to an experienced trust attorney to find out if a living trust is right for your particular situation.

Todd Miller is a monthly contributor and regularly writes and speaks on various legal topics including bankruptcy, estate planning, probate, and elder law.  He formed the Law Office of Todd Miller, LLC, 1305 Southwest Blvd., Ste. A, Jefferson City, Missouri in 2006.  He has been awarded the Substantial Contributor Attorney Award by the Missouri Bar and ranked as one of the “Top Attorneys in Missouri” by The Legal Network.  Mr. Miller earned his juris doctorate degree from the University of Missouri School of Law in 1999 and graduated with honors from Lincoln University in 1991.  You may find him at www.toddmillerlaw.com (573) 634-2838 or on Facebook, Instagram, and Twitter.