Reasons to Consider a Trust

There are many reasons, such as a blended marriage, for you to consider creating a trust. Within a blended marriage a couple must determine what to do with their joint and sole assets upon thier death. Blended marriage is a situation in which there may be multiple children’s inheritance’s to consider. Blended marriage is not however the only reason to consider a trust.

When considering your estate planning options, a number of reasons exist to consider creating a revocable living trust. Some of the more common reasons for creating a trust are detailed below.

Privacy Concerns

privacy-iconPrivacy and identity theft are growing concerns for many people. For those with this concern, creating a revocable trust should be an important consideration.

Generally, probate is a public judicial process. Much of the information filed in a probate matter is a court record and therefore, a public document, available to anyone who requests the file. Probate cases are, therefore, not only open to the public eye, but also public scrutiny. For those concerned with privacy, a trust can be beneficial as it avoids the very public process of probate.

Unmarried Couples

unmarried-iconThe law provides that spouses, have certain authority to make decisions and property rights without any additional estate planning documents. While unmarried couples face similar concerns to blended marriage couples, proper estate planning is even more important because many states do not recognize an unmarried couple’s relationship or grant such partners any legal protections. A living trust can be invaluable for couples seeking to leave assets to each other, or desiring to ensure that their partner handles their finances if they become incapacitated, particularly in cases where one partner’s relatives might seek to interfere with those plans.

Disabled Adult Child

disabled-iconAs they get older, parents become concerned about providing care for their disabled adult children after their passing. A living trust can be beneficial to individuals or couples who care for disabled adult children. Most often, these children receive government benefits like Disability or Social Security, which are based on financial eligibility. Receipt of large sums of cash or inheritance can potentially disqualify recipients from continuing to receive these benefits. A trust can manage the inheritance for the benefit of the beneficiary, without disqualifying him or her for his or her government benefits.

Ownership of Property in Multiple States

multiple-states-iconOne of the most important reasons to consider using a revocable living trust is ownership of property in multiple states. The law requires a decedent’s executor to probate real property in the state where that property is located or registered.

For example, if you own a home in Pennsylvania, a rental property in Kentucky and a beach house in Florida, your estate will need to be probated in three different states.

Because a trust avoids the process of probate, it can be extremely advantageous for those who own real estate or other assets in multiple states. A trust distributes the grantor’s assets according to its terms, regardless of where in the United States that asset is located or titled.

Guardianship or Incapacity

guardianship-incapacity-iconWills, unlike trusts, are only legally effective to give someone else control of your property after your death. If you are concerned about becoming incapacitated prior to your passing, you should consider creating a revocable living trust.

Although a power of attorney is often advantageous if someone should lose their capacity, many come under considerable scrutiny. It’s not uncommon for a bank or other financial institution to refuse to honor them. The institution may also limit the attorney-in-fact’s authority to make medical or financial decisions. In such scenarios, someone must file for appointment as a conservator and/or guardian of the estate and be granted court approval to make financial decisions. Beyond the expense and hassle, this process is public and generally requires frequent court supervision and reporting. Because a trust holds title to your assets and provides for a successor trustee in case of your medically determined incapacity, it avoids the necessity of this process.

Blended Marriage

blended-family-iconThe frequency of divorce and remarriage is increasing, which impacts many estate planning decisions. When couples who have previously been married to others decide to unite, they have many legal issues to consider, especially if one or both have children from these prior marriages.

A will often leaves all of the decedent’s property to their spouse, which can have unintended consequences in a blended marriage, making a trust a better choice. In fact, many couples in this situation will chose to not only use a trust, but to have separate trusts created to hold (and distribute) their individual property.

Estate Size

estate-size-iconMany people with larger estates use a revocable trust for privacy and to provide greater flexibility in the distribution of their estate. Frequently, one can justify the cost of establishing a trust simply based on the size of the estate. In many states, the total costs associated with probate can sometimes be two or three (or more) times the initial cost to establish a trust. While the initial cost of establishing a trust may seem high to some, frequently the creation of a trust offers a substantial long-term costs savings to one’s beneficiaries after one’s death.

Multiple Beneficiaries

multiple-beneficiaries-iconSome estates are simple, having only one or two beneficiaries. However many are not and, with more beneficiaries, the greater the likelihood of personality conflicts. A trust can help people with numerous beneficiaries because in the event of a disgruntled heir, the trust is often much more difficult to contest successfully than a will.

Estate Taxes

estate-tax-iconOne of the traditional reasons a married couple considers and uses a revocable trust is to reduce estate taxes by including what is frequently called a marital or bypass trust.

Current Federal law excludes the first $5,490,000 (2017) in an individual’s taxable estate from Federal estate taxes. Additionally, many state estate tax laws do not include the “portability” feature of the Federal version, requiring the use of a trust to take full advantage of both spouse’s exemption amounts.

Even though most people (the vast majority of people) will not have to pay Federal Estate taxes, many states have their own estate taxes with substantially lower exemption amounts. Additionally, many state estate tax laws do not include the “portability” feature of the Federal version, requiring the use of a trust to take full advantage of both spouse exemption amounts. As a result, a revocable trust is often a better planning option for an estate which may owe estate taxes.

Residency of the Executor

residency-executor-iconGiven our increasingly mobile society, its possible that your executor will live in a different state. Most states do not require that the executor be a resident of the state in which the decedent lived. But, additional steps will be required in that circumstance. Most states require a non-resident executor to appoint a resident agent or retain a local attorney and require the executor to appear in person at least twice in the Probate Court.

For an executor living (and working) hundreds of miles away from the decedent, this can be next to impossible. A trust can avoid these probate requirements and court hearings by allowing the decedent to choose whomever he/she want to distribute his or her assets without concern of residency status or fear imposing an inordinate burden on that person.

Minor Children as Primary or Contingent Beneficiaries

minor-beneficiaries-iconMany people have beneficiaries who are young people. They are concerned that if such children receive a substantial inheritance at a young age will result in excessive spending and other negative consequences. The issue is even more serious if the potential beneficiaries are minor children, since you cannot leave property to minor children.
In the event you have minor children or grandchildren who are intended beneficiaries, a trust can hold and manage assets until such time that they reach the age of majority, or older. A trust, managed by a trustee that the grantor names, can allow for distributions prior to that time for medical or educational purposes, as well. Utilizing a trust will give you greater flexibility in your distribution plan than a number of alternatives.

Disinheritance and Court Challenges

court-challenges-iconJust the words alone might raise an eyebrow or two. A will is really nothing more than a letter of instruction. It is not legally binding if the Probate Court finds a valid reason to reject it. Recent studies have concluded that nearly one out of three wills which are contested are successfully overturned in some fashion.

A trust is essentially a contract and, unlike a will, a trust holds title to your property. Courts strongly favor upholding the validity of contracts unless the challenging party proves that exceptional circumstances exist, like fraud or duress. This means that a trust can offer greater protection against those who might wish to contest your final wishes.

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