There is so much conflicting material out there about trusts that it can be overwhelming. Here are some quick thoughts on the good and not-so-good aspects of a trust.
If you have minor children, you will want to create a Guardianship Trust in your will to hold and manage the money your children will receive from you. You can add language to the trust that prevents the money from getting into their hands at age 18 by extending the trust out to a more appropriate age, such as 25 or so.
If you are the parents or grandparents of a person with special needs, you will want to set aside any money designated for them in a Special Needs Trust. Such a trust will allow the person to maintain financial eligibility for any Federal, State or Local Programs. If you simply name the person in your will, the receipt of any money in excess of the mandated maximums will result in him or her becoming ineligible for benefits for a time, and then having to go back through the application and approval process.
Creating a trust during your lifetime is often called a Living Trust and it allows you to transfer your assets into the trust now, and to retain control by naming yourself as the trustee. If you become incapacitated later in life, all of the financial mechanics are in place to allow your successor trustee to manage your affairs. After you die, your heirs can avoid the probate process and executor fees which can cost several thousand dollars.This also puts the money in their hands months sooner. So, if saving your heirs time and money is one of your goals, you might consider spending some of your time and your money now to have a trust prepared as the centerpiece of your estate plan.
In reality, though, you might spend $3,000-5,000 to have your estate plan drafted, and to have an attorney help you through the asset transfer or funding process. It also may take several months until everything is transferred. This is almost like the probate process itself, except you are doing it yourself. Your efforts to make things easier for your heirs will pay off in the long run, but I would not be surprised if you question the cost and the effort along the way. If you like the idea of controlling things while you are alive and after your life ends, a trust can be a great planning tool for you.
Trusts often confuse banks, real estate agents, insurance brokers, and other financial advisors with whom you deal. You will likely have to produce a copy of the trust for review by the institution’s legal department, and this can delay your transactions until you get past that hurdle. And while a trust is mostly private, these disclosures to your local bank branch can be somewhat embarrassing.
When you come to our office for estate planning services, we will most certainly discuss the topic of trusts. It may be a perfect planning tool for you, or you may find you neither want or need one.