A trust is a separate legal entity for holding and investing property. One or more persons (the “trustee”) holds property, usually real estate or investments, for the benefit of another or several other people (the “beneficiary”). The trustee can follow detailed instructions under the trust agreement to manage funds and apply them for the benefit of the beneficiaries.
Many clients who come to my office for estate planning bring along a big binder containing a revocable living trust agreement. The trust allows them to “avoid probate.” My initial thought upon seeing this is that the complicated and the lengthy trust agreement they have in place does not fit with the client’s desire for a simple plan. Because of the prevalent confusion I see around trusts, I want to review five times when I do recommend clients plan through a trust agreement.
The purpose of a Special Needs Trust is to enable the donor to provide for the continuing care of a disabled spouse, child, relative or friend. The beneficiary of a well-drafted Special Needs Trust will have access to the trust assets for purposes other than those provided by public benefits programs. Thereby, the beneficiary will not lose eligibility for benefits such as Supplemental Security Income, Medicaid, and low-income housing.
Although a probate proceeding in Washington State is not cumbersome or expensive, a probate in several states can be. I do ask clients to consider transferring real estate into a trust when there are pieces of real estate in multiple states. Trust agreements can also be very useful in laying out a plan for transferring the costs and shares in a vacation property to next generations. As you can imagine the family gets bigger and more complicated with each generation.
Occasionally, a person has no good options for having family members assist them as they age – poor or non-existent relationships. A person can develop in a trust document how they wish to be cared for (e.g. they want to stay in their home, or they want to be in an assisted living facility) and they may appoint a trustee to carry out their wishes.
Minor children are not able to manage money. For young parents, I often write a provision in their will that asks their executor to create a trust and pass their estate into that trust for the benefit of their minor children. The parents provide detailed instructions about how a trustee must use the trust funds (e.g. they want the funds used to help the child purchase a house when they reach 30 years of age).
If a person’s estate may be taxed (State and Federal), then a person may wish to plan using one of a variety of irrevocable trusts. Generally, the idea here is that the transfer to the irrevocable trust will reduce the size of the person’s estate subject to estate tax.
Trusts are best used to accomplish a specific, driving purpose. In my opinion, avoidance of probate, maintaining privacy and reducing the chances of litigation are usually not compelling reasons to have a trust agreement. If you have a revocable living trust that you do not understand, talk with an attorney about whether it still meets your needs.
Disclaimer: This article and blog are intended to inform the reader of general legal principles applicable to the subject area. They are not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.
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