I am usually asked this question when consulting with a new client regarding estate planning. In true, classic attorney fashion, the answer is, “it depends.” It depends on an individual’s specific situation, family makeup, assets, and goals. However, a Trust’s purposes, and its advantages and disadvantages play into the determination as well.
What is a Trust?
Usually with an estate planning client, when we talk about a Trust, we are talking about a Revocable Trust. “Revocable” means that the Trust may be changed or revoked during the lifetime of the person that creates the Trust, known as the “grantor” or “settlor”. A Revocable Trust allows for management of assets owned by the Trust during the grantor’s lifetime and provides for the distribution of those assets after the grantor’s death.
What are the advantages of a Trust?
One of the most common goals in estate planning is to avoid probate court proceedings. If a Trust is funded with all the grantor’s assets during their life, or upon death, then no probate court proceedings will be necessary upon the grantor’s death. Avoiding probate saves the time and expense of probate court administration, and, most often, administration of a Trust is completed privately, with no public record.
Another advantage of a Trust is that it allows for the grantor to delay distributions to beneficiaries of the Trust until they reach a certain age, while still allowing for the successor trustee to provide for the needs of the beneficiaries, within the successor trustee’s discretion.
What are the disadvantages of a Trust?
Implementing a Trust and having it work, as intended, to avoid probate court administration, requires some extra work on the part of the grantor. The grantor needs to ensure that all assets are owned by the Trust. This requires such steps as updating beneficiary designations on life insurance policies, retitling or adding pay on death designations to bank accounts, and retitling real estate with new deeds in the name of the Trust.
Obviously, there is also the additional cost of having the estate planning attorney prepare the trust document. However, this additional cost, up front, usually pays off in avoiding the time and expense of probate court administration after the grantor’s death.
Is a Will still necessary?
Even if someone has a Revocable Trust, a Will is still necessary. A Will in an estate plan with a Trust is called a “pour over” Will. Such a Will provides that any assets that are part of the deceased’s Estate, and, therefore subject to probate administration, be transferred to the Trust and then distributed to the beneficiaries of the Trust. The pour over Will serves as a “safety net” in the event that the grantor neglects to retitle an asset into the Trust. It will still require probate administration, but it will ensure that the asset does not go to anyone besides the ultimate beneficiaries in the Trust and will not be distributed until such time as designated in the Trust.
Additionally, for individuals with minor children, a Will is where the individual indicates who they would want to act as guardian and conservator for their minor children, if something should happen to them.
What types of assets, goals, or other factors contribute to a Trust being recommended?
The following factors are often relevant in determining whether or not an individual should have a Trust:
For more information, contact Estate Planning attorney, Jeffrey M. Black, at (616) 458-3994 or email firstname.lastname@example.org.