Updated: Dec 27, 2019
In my practice, I’ve found that when I meet with Estate Planning clients, one of their first questions is: “Do I need a trust?” For the average person, the answer is no, but there are some situations where I do recommend it.
When people ask if they need a trust, they usually mean a “revocable trust.” A revocable trust allows you to maintain control of your assets during your lifetime. There are actually many different types of trusts, including:
Special Needs Trust
Life Insurance Trust, and more
For the average person engaging in Estate Planning, only a Revocable Trust would be relevant.
NOTE: This advice is for people with typical assets, where there is no concern about the inheritance tax. If you own more than $2.75 million in assets, you should consult with an estate planning attorney about ways to minimize tax consequences.
What Is a Revocable Trust?
A revocable trust, also referred to as a “living trust,” allows the person creating the trust (called a “settlor”) to maintain control their over assets while they are living. A settlor can change or dissolve a revocable trust at any time. The trust sets out how the settlor’s assets will be held and/or distributed when the settlor dies, just like a will. Unlike a will, though, a revocable trust can remain in place and hold the assets for long after the settlor’s death. A revocable trust is a great tool to minimize or eliminate probate court involvement after death.
There are several circumstances where I am more likely to recommend a revocable trust:
When you have children under age 18, or you want your assets to be held for children until they reach a specific age.
If you are not married and you own real estate.
If you own more than one piece of real estate or you own real estate in a different state.
If you are in a second or later marriage and you and your spouse will have different beneficiaries such as children or grandchildren.
When your main concern is that you want to avoid Probate Court.
In any of the above situations, I will always talk to my clients about whether a revocable trust makes sense for them. Otherwise, a simple Will is sufficient for most people, along with some planning ahead to minimize Probate Court involvement.
How to Avoid Probate Court
When a person dies, an Estate must be opened in Probate Court to transfer or distribute all assets owned by the person at the time of death. While probate court doesn't have to be a big deal, it's still worth avoiding because it can be costly and time-consuming. Read more about how probate court works. Setting up a revocable trust is one way to avoid probate court, but there are other steps one can take as well.
Whether they have a will or a revocable trust, I encourage all my clients to take the following steps to avoid Probate Court:
Designate all bank accounts, investment accounts, and retirement accounts as “Payable Upon Death” (“POD”) or name specific beneficiaries.
Assets owned together with your spouse as “tenants by the entirety” will pass to your spouse automatically upon death. You can own bank accounts, investment accounts, vehicles, and real estate as tenants by the entirety, but they must be designated this way before death.
Assets owned with another person as “joint tenants with rights of survivorship” (also referred to as “JTWROS”) will pass to the other owner automatically. This is the same concept as tenants by the entirety, but with a non-spouse, and the account or property must be designated this way before death. NOTE: Any asset that is owned with another person must go through Probate Court UNLESS it is owned as “tenants by the entirety” or “JTWROS.”
In addition, there are some assets that automatically pass without the need of going to Probate Court, such as life insurance policies, which pay out automatically upon death, and title to a vehicle, which will transfer automatically to a spouse upon death.
All other assets or personal or tangible property will have to go through Probate Court unless you have a trust.
A Note about Long Term Health Care
If you have any concern about the need for long-term care, either in a nursing home or at home, you should talk to an Estate Planning lawyer about Medicaid planning. Medicaid planning is a very different process than traditional estate planning and requires specialized knowledge.
Do you need help setting up a trust?
If you are considering up a trust or need help with estate planning or Medicaid planning, we can help.
Flat Fee Estate Planning
MGL now offers Flat Fee Estate Planning packages for single people and couples, with or without a trust.
Contact us for more information.
Want to learn more?
Read our blog article, What Is a Trust.