Revocable Living Trusts
People often say that they do not need a trust because they are not millionaires. The truth is, whether a person should have a trust often has little to do with the value of an estate. It has more to do with the kinds of assets they have and how they want them distributed, although they do have beneficial tax advantages for married couples with sizeable estates.
What is a trust?
A trust is a document that is similar to a will, in that it directs how you would like your assets to pass after death. The purpose of having a trust is often to avoid probate, although there are other reasons as well. The most common kind of trust is called a “revocable living trust”. This name is often confused with “living will”, which is then often confused with “Last Will & Testament.” They are not the same thing.
Why do people need trusts?
The primary reason that people choose trusts is to avoid probate, although it is usually not the only way to avoid probate. However, aside from avoiding probate, there are several common situations where trusts are the best choice:
- People with real estate in more than one state use trusts to avoid having probate in multiple states.
- People who want to “control from the grave” choose trusts so that they can control how money is distributed after their deaths. For example, people can limit distributions to specific amounts at certain ages, or require that a beneficiary enroll in college, pass drug tests, stay out of the criminal system, etc…
- People who want to make charitable distributions choose trusts to simplify distributions.
- People who want to disinherit a child choose trusts to protect as much as possible against their wishes being contested.
- People with disabled family members choose trusts to provide for the disabled person while maintaining any government benefits the disabled person is receiving.
- People who want their documents to remain private choose trusts rather than having their Last Will and Testament go through probate and become public record.
- Married couples with sizeable estates choose trusts to minimize their federal estate tax.
- Married couples where one spouse is in a nursing home or expected to enter a nursing home choose trusts to obtain Medicaid benefits to pay for the nursing home care.
Do I save or lose money with a trust?
Trusts cost more up front than other estate planning – typically around $2,000 – which includes a “complete estate planning package” of all other necessary documents (wills, financial powers of attorney, healthcare powers of attorney, and deeds to trust). However, the cost of probate can far exceed these costs.
Do people like dealing with trusts?
People are getting very comfortable with trusts, and far prefer them to probating a will. Administering a trust is simpler, less expensive, and less time-consuming than probating an estate. Most people are happy with trusts, as long as they are appropriate in their situation and they understand how they work. Trusts are not right for everybody, but for many people, they save a great deal of time and money down the road.