Do I Need a Trust?

A trust can be used to fulfill many wishes. They are not just for the wealthy. They are much more common than you may realize, but its one of those things people never talk about. Here are some common reasons anyone might want a trust.

Avoid probate! Any kind of trust “avoids probate” because a trust is like a beneficiary designation. Beneficiary designations on accounts or real estate mean that the asset will not go through probate. However, you never really “avoid probate.” 1) Even though nothing is going through probate, court still wants to know if they get to collect taxes. If you do not have over $13 million, they do not. The court just needs to check. 2) If the house is in a trust, no living person owned it. But if that wasn’t the case, the court has to remove the deceased person’s name from the deed so it can be sold. 3) This process removes the capital gains tax on the house or stock so the heirs can sell it without paying a tax. That tax is usually much more expensive than the probate filing, so it is worth doing.
Protect heirs. Couples often make a trust to hold inheritance for young children. They can then decide at what age they want their children to receive the inheritance (usually 25 or 30 years old) and who should control the money until the child reaches that age. The person in control is the Trustee. Grandparents may use this if they do not want their child, or in-law, in control of a grandchild’s inheritance. The money can still be used for the child’s school, healthcare, and so on. But the Trustee decides what is reasonable, not the child. This way they are more likely to have a Honda Civic instead of a Porsche.
Sometimes older heirs need protection too. Disabled or special needs individuals need trusts so they don’t lose eligibility for government programs. Older people may inherit from siblings, or parents, just when they are trying to hide their own assets. It is better for the inheritance to be held in a trust so they can get money when needed, instead of risking the entire thing to the spenddown.

Protect the money from a spenddown. Later in life (age 65-75 usually) people begin planning to save their hard-earned assets, in case they get sick. Sometimes they put assets in their kids names. The idea is if it is not yours, they cannot take it from you. The problems with using the kids are 1) They might lose it and 2) Taxes. The kids might be willing to hold the asset and give it back if asked. But what if they get sick, sued, divorced, or even pass away? They are good people, but still just people. Things can happen. Also, if you put real estate or stock in their names, there is a good chance they will pay a capital gains tax that could have been avoided if the transfer were done properly. A trust can avoid that risk.

You do not have to lose control. Revocable trusts are your sandbox- do anything you want. Irrevocable Trusts can still allow you to make changes. You can sell the house, and downsize, and change the beneficiaries in future. The only hard rule with an Irrevocable Trust is that whatever you give the trust you cannot take back. But that is the same as giving your child your house. They have to decide to give it back. So in the end, there isn’t much difference- but a trust is safer, because it is not a person that can get sick, or into any legal trouble.

But isn’t a trust expensive? It depends! If the trust is complex, it will be more expensive than a simple trust that just holds the house and gives it to your kids when you pass. If a friend or family member is your Trustee they probably will not charge any yearly fees. Don’t let the fear of the cost stop you from at least talking with an experienced attorney that can help determine if a trust is right for you.

Attorney Halley C. Allaire is principal in the law firm of Allaire Elder Law, a member of the National Academy of Elder Law Attorneys, Inc., with an office at 271 Farmington Avenue, Bristol, (860) 259-1500, or on the web at www.allaireelderlaw.com. If you have a question, send a note to Attorney Halley C. Allaire and your question may be discussed in a future column.