I had a meeting with Bill, a potential client, last week. After we made our introductions I asked him what I could help him with and Bill told me he needed a Trust. I told him he definitely came to the right place, but asked him why he thought he needed a trust. Bill told me all about his neighbor who just signed all of their estate planning documents, which included a trust. This neighbor told Bill that he needed a Trust.
I have heard this story many times with potential clients and as much as I would love to create a Trust for them and gladly take their money, I explain to them it is not always necessary and they can keep their money for something else. You can pick your chin up from off the floor. Yes, I am an attorney who just told you something that would make me money may not be necessary and to keep your money.
There are many reasons to create a trust; however your particular situation may not be one of them. If a client wants one for the heck of it I am more than happy to prepare it, but before anyone makes that decision, they should be will educated to determine if it is in fact necessary.
Although there are many reasons for Trust, below I will discuss 5 Reasons You Need A Trust. Let’s first discuss the difference between a Will and a Trust. A Will disposes of all of your probate assets when you die. Trusts can be created to take affect only upon death, or they can be created and take effect while you are living. A Trust is a nonprobate asset and disposes of those specific assets placed in the Trust. Stay tuned to my article next month to learn what constitutes probate and nonprobate assets.
5 Reasons You Need A Trust:
- Out of State Property. If you have any real estate that is not located in the State of Texas, you need to consider creating a Trust to hold the property. This Trust would be created during your lifetime and is called a Revocable Living Trust (RLT). The primary purpose of this RLT is to eliminate the need to go through the probate process in each state you have property. Without this RLT, you will have to go through the probate process in the state the property is located. This process can become cumbersome and costly depending on the State. To avoid the delay and cost, an RLT can be created to hold the property and control its distribution upon your death.
- Special Needs planning for a loved one. A Special Needs Trust is the most effective way to protect your child with a disability. This is a very specialized Trust that can manage the assets you have set aside for your child with a disability while also maintaining that child’s eligibility for public assistance benefits. Because these are such specialized trusts you must educate yourself as to the different types of Special Needs Trusts and the do’s and don’ts to these Trusts. It is always recommended that you speak with a qualified estate planning attorney. We have seen too many times when the Trust was written properly, however the creator of the trust did not do everything correctly and the child was disqualified for any public assistances.
- Perfect assets protection for your children. Believe it or not, by setting up the proper Trust you can make sure 100% of your assets, in addition to its growth, will always be available for your children and will not go to a creditor or ex-spouse. For example, if your 25 year old caused a car accident and was sued for a significant amount of money, no one would be able to get to any of the assets in the Trust, as long as it was set up properly. In addition, if your kid was married for 5, 10, 15 or even 20 years and got a divorce, their ex could not get to any of the assets in the Trust. That is why we consider it perfect asset protection.
- Privacy. When someone dies and we go through the court process, we must file their Last Will and Testament with the county clerk’s office. This Will is public record, meaning anyone can go to the clerk’s office and make a copy of the Will. Furthermore, it may be necessary to file a document called, Inventory, Appraisement and List of Claims, that literally lists every asset that individual owned. This document must show the specifics of each asset, for example it will list the account, bank and exact balance in the account as of the date of death. In order to protect your privacy, you can place your assets in a Trust while you are alive. You maintain full use of the assets in the Trust but the Trust remains completely private. It is only shared with those of your choosing.
- Spendthrift. What does this even mean? If you have a spouse, or child that loves to spend money they are considered a spendthrift. Whether you give them $50 or $5,000, they will spend it very quickly. There is a special Trust that can be created for the benefit of your loved one. As the creator of the Trust, you appoint a Trustee, who is someone you trust or even a Bank or Trust Company. This Trustee has the authority to make distributions to your spouse or child. All of the assets of the Trust are used for their benefit but your spouse or child cannot access the assets on their own.
Remember to always consult with a qualified estate planning attorney to determine if a Trust is right for you. The best advice I can give you is to be educated as you meet with estate planning attorneys. Although there are many reasons to create a Trust, those discussed above are the most common reasons why one may be necessary or recommended.