I had been practicing law for several years before I could say that I personally knew someone who had established a trust. For the longest time, the only mention of trusts that I had ever heard was on TV and it was often in reference to spoiled, entitled “trust fund babies.” I had a special side eye reserved for trust fund babies because I didn’t understand why someone should create a trust.
Then out of nowhere it seems, after I had been an attorney for a while, EVERYBODY AND THEIR MAMA started asking me about trusts. Somebody, somewhere (I still haven’t identified the source) started telling folks that they needed to set up a trust. And for the longest I was turning people away. “The average person likely doesn’t need a trust,” I’d say. “A will should be sufficient for everyday folks like us.” I eventually learned that I was wrong about that. There are actually several reasons why “everyday” middle income folk might consider setting up a trust or two. It’s important to note here is that everybody’s situation is different and what one person needs might be totally different than what another person’s circumstances call for. That’s why it is important that you speak with an experienced estate planning attorney such as yours truly (you can call us now or visit our website for more info, if you’d like) before establishing any trusts on your own.
First, what is a trust?
Put simply, a trust is a setup in which Person A (the Trustor or Grantor) puts some money or property into the care of Person B (the Trustee), who then, becomes responsible for managing the money or property for the benefit of Person C (the Beneficiary). There might be several reasons why Person A might want to leave money or property to Person C by way of a trust rather than giving it to them outright, but we are only going to touch on three of those reasons in this article.
You might create a trust for leaving assets to a minor child
In most cases, it would not be wise to give any significant amount of money or property directly to a minor child. They might mishandle it, or it may fall into the wrong hands. In some cases, the law might prohibit you from leaving a child significant money or property outright. The law tends to prefer that a minor child be given significant assets through the hands of a responsible adult who will serve as Trustee or Custodian over the child’s property. For this reason, if you are considering setting aside funds for your minor children through your estate or financial planning and you have children under a certain age, you might want to make those kids trust fund babies and leave the property to them via a trust. For example, you probably shouldn’t list your kids as beneficiaries on your life insurance policy. Leaving it to a trustee or custodian on their behalf would be a better way to do it. When you create a trust for your child, you get to set the rules for who manages the property and the terms under which the child will be given the money (i.e. after a certain age or after graduating from college). Depending on your goals, you could create a standalone trust for property that you want to set aside for your children, or you could have it set up so that a trust would only be created for the child if you were to pass away while they were still underage. If they are above age, you could have it go to them outright.
You might create a trust as part of a long-term care plan
Statistics say that the average adult will need some sort of long-term care assistance at some point in their old age. People are living longer and as a result are becoming more likely to experience a disability as they age. Many people will receive long term care at home or in a nursing home. This type of care costs money. A lot of money. I’m talking and average of $100,000 a year type of money. For most people, an amount like that would be impossible to cover, so some sort of long-term care assistance is needed to afford care. Ideally, you would have long term insurance available to cover some portion of the costs, but it also might make sense to create an irrevocable trust to help you qualify for Medicaid, which can make long term care affordable. An irrevocable trust might also be used to protect assets from being absorbed by the state if Medicaid funds are used to help pay for nursing home care.
A trust can serve as a will substitute
Sometimes it makes sense to use a trust in your estate plan as a substitute for a will. When a will is the foundation of your estate plan, the will has to go through probate court after you pass away before your assets may be distributed to the people you leave behind. However, if you put your assets into a trust, then anything put into the trust while you are living can be distributed after your death to your loved ones according to the terms of the trust without having to go through probate first. Also, including a trust in your estate planning, rather than a will alone can streamline the process of giving another person control over your assets in the event that you become incapacitated and unable to manage your own affairs. With these types of trusts, the person putting the assets into the trust (the Grantor), the person managing the trust (the Trustee), and the person who benefits from the trust (the Beneficiary) may all be the same person when the trust is created. However, a secondary Trustee stands in place to take over in case the Grantor/initial Trustee becomes unable to manage their assets anymore or after they pass away. It can be the ultimate back up plan if you ever got to a point where you became unable to manage your own affairs.
So, Veronica, should I put a trust put in place?
That’s a great question! And though I am unable to answer that for you in this article, I’d love to explore it with you during a Clarity Call. During a Clarity Call, we will discuss your personal circumstances and help you get clarity on whether you should include a trust in your estate plan, or whether something else would be more appropriate. I’d love to talk with you about it. If you are ready to have this conversation, please click the button below to schedule your Clarity Call or give our office a call at 478.292.7444.