Many people come to me wanting to know whether or not they need a trust. While there is no hard and fast rule, there are some considerations you should make in deciding whether or not a trust is in your best interests.
First of all, you need to understand what exactly a trust is. A trust, much like a corporation, is a separate legal entity, which has its own tax ID number and its own existence outside of the people who create it. Once the trust exists, you ‘donate’ your property to the trust. At that point, you no longer own the property, the trust does.
The “Donor” is the person who gives property to the Trust.
The “Trustee” is the person who takes care of the property of the Trust and who decides whether or not it can be distributed or used.
The “Beneficiary” is the person who gets to use the property of the Trust if the Trustee says it is ok to use.
The Donor, Trustee, and Beneficiary can all be the same person.
So if you are giving your property to a Trust you manage for your own benefit, why bother?
There are a few reasons why you might want to do this. One is if your contingent beneficiaries (that is, the people who get the stuff in the Trust after you are gone) are impaired in some way. This doesn’t have to be a legal-type impairment. If you want your son to have all your money, for example, but you find him ridiculously irresponsible, you may want the money he gets to be in a Trust that someone else manages. (This article does not address Special Needs Trusts.) Another reason is for estate taxes. If you have a whole bunch of money, that is, more than $5,450,000.00 in 2016, when you die, you have to pay Estate Taxes on the excess. If that money, or the overage, is in a Trust, you don’t own the money, and the Trust can’t die, so there are no Estate Taxes.
Sometimes, if you are afraid your assets will be depleted, or nearly depleted, by the cost of a nursing home, you may want to set up a Trust to help protect those assets for your heirs. When you die, Medicare can come back to your Estate for reimbursement. If your assets are in your Trust, then you don’t have them anymore, the Trust does, and Medicare can’t get them. Bear in mind that there are ‘look back’ rules, and if you have transferred your assets out of your name within a certain amount of time, it can be considered a fraudulent transfer made for the purposes of hiding assets for Medicare (which, to be honest, it likely was) and they can take the assets anyway.
Many people want to create a Trust in order to avoid probate. In some states, such as Florida, where probate laws are complicated, this may make some sense. In Georgia, where probate laws are relatively simple, this may not be necessary. Especially because if this is your goal, you have to make sure that everything is owned by the trust. This includes Savings Bonds you may have had for thirty years, old retirement accounts and investments, that don’t have beneficiaries and cars. If your car is in your name and not in the Trust’s name, if you die, your heirs will likely have to go through Probate anyway just to get the car sold or transferred.
There’s also the question of when you’d want a revocable trust or an irrevocable trust, and what happens when married people have a trust and then get divorced. But that’s another column for another day.
There aren’t any clear cut answers as to when you definitely should or shouldn’t. As with most thorny questions, make sure you talk to a lawyer who has some expertise in this area before making a decision.
Nothing in this article should be construed as legal advice. It is being offered for informational purposes only. No lawyer can advise you without hearing the particular, unique details of your situation.