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Publications | April 22, 2022
4 minute read

To Trust or Not to Trust – That is the Question!

Often, I get calls from clients requesting something specific. Many times, clients are requesting a trust. The reasons vary, but I usually hear a version of the same three things: “My friend just made a trust, and they told me that I should have one too” or “I don’t want the nursing home/courts to take my house/money” or “I don’t want my kids to have a hassle when I die.” But, actually, the first question a client should ask me is “What is a Trust?”

What is a Trust?

Broadly, a trust is a fiduciary arrangement laid out in a legal document that governs the management and eventual distribution of a person’s assets in line with their goals and intentions. Within that definition is a myriad of different types of trusts with differing purposes.

Why Would I Want a Trust?

The classic lawyer response to this question is “It depends.” The long answer is almost always some combination of the following reasons:

  • Avoiding Probate Court. A will is merely a set of instructions for the court to follow in overseeing the distribution of a person’s probate assets. A trust appoints a trustee (fiduciary) to oversee distribution of the trust assets, removing the need for the court to be involved in most cases.
    • A common mistake that lands clients back under the oversight of the probate court is creating a trust and then failing to convey their assets into it (also known as a “failure to fund the trust”). A trust is not helpful unless it actually owns the assets (is “funded”), because assets still owned by an individual at death are managed under the eye of the probate court. However, assets that have been conveyed into the trust are managed instead by the trustee and stay private.
  • Special Needs and Spendthrift Planning. Sometimes controlling the receipt of an inheritance is very much in the beneficiary’s best interest. These types of trusts allow the creator (known as the “settlor” or “grantor”) to structure distributions to beneficiaries over time and based on certain conditions. This allows for continued management of assets on behalf of a special needs beneficiary (without jeopardizing eligibility for some types of government benefits) or on behalf of a beneficiary who requires additional spending oversight.
  • Asset Protection and Medicaid Planning. These types of trusts are typically irrevocable, and separate the ownership of the trust assets from the settlor. There are pros and cons to creating an irrevocable trust, and very interesting (read: expensive) consequences to getting this wrong. Structured properly, these types of trusts can greatly reduce the asset depletion that can occur as result of lawsuits, divorce, creditors, taxes and long term care costs.
  • Blended Family Structures. A frequent concern for blended families is ensuring that assets are available to a surviving spouse, yet not disinheriting children from prior relationships. A trust can accomplish these goals and give comfort to both spouses that both the survivor and the deceased spouse’s children will be provided for.
  • Management of Unique Assets. Vacation homes, pets, firearms, mineral rights and commercial real estate are examples of assets that are not neatly or easily divided among heirs. Holding these types of assets in separate trusts can insulate the owner from liability and also create a framework that allows a trustee to manage these assets for the benefit of many without having to liquidate the assets.
  • Charitable Giving. A contribution of cash or investment assets to a charitable trust can provide the trust beneficiary with fixed or fluctuating income payments for a period of years or for their lifetime (and their spouse’s lifetime, if desired). At the trust beneficiary’s death, the remaining trust assets transfer to the named charity. These trusts can provide income and estate tax benefits.
  • Tax Planning. In a world of seemingly never-ending changes to tax rules and regulations, building flexibility into an estate plan to address these changes is key. For those with potential estate tax liability, a trust can be useful to reduce that tax exposure.

Achieving Goals with a Trust

There are many reasons why a trust might make sense for you. Most people, regardless of the size of their estate, can benefit from trust planning to address and achieve distribution, family legacy or tax goals.

Trusts are not one-size-fits-all, and each document should be tailored to a client’s individual needs. In short, be clear with your estate planning attorney about your goals, and your Warner attorney will come up with the plan that works best for your situation. Contact your Warner estate planning attorney, or Merica Dobry at 231.727.2610, to discuss your individual and family goals and create an estate plan that is right for you.