“I don’t need a trust. We don’t have enough money.” Fair enough. There are some circumstances where the administrative costs of a trust do not make sense. However, whether a trust should be part of your estate plan often has more to do with your beneficiaries than with your wealth.
At its most basic, a trust is an entity in which a trustee holds, manages and distributes assets for the benefit of a beneficiary. A trust can be created in a Last Will and Testament (“testamentary trust”) or a separate trust agreement during life (“inter vivos trust”). The terms of the trust are highly customizable to address concerns for and about particular beneficiaries. The trustee has a fiduciary duty to administer the assets pursuant to the terms of the trust and of state law.
A few instances in which trusts might be appropriate:
- A trust for the surviving spouse to ensure that assets are used for his or her benefit and to direct those assets to the testator’s descendants upon the surviving spouse’s death. This may guard against future spouses being able to deplete the assets whether through spending or a subsequent divorce.
- A child has a history of debt and imprudent financial decisions. A trust can limit distributions to the child not only to preserve trust assets but also to restrict creditors’ access to the trust funds.
- A child is married to a domineering spouse and it is inevitable that any property that such child receives outright will be controlled and used by the spouse. A trust can preserve the assets for use by the child and, if a third party trustee is appointed, provide a bulwark against the spouse.
- A grandchild is preparing to become a physician. A properly drafted trust can provide a level of asset protection for those in high-liability professions.
Of course, these examples are the tip of the iceberg as to why a trust may be an appropriate planning technique. Consult with a qualified attorney who considers your unique family and financial circumstances when considering the role of trusts in your estate plan.