Legal-Ease: Do I need a trust?
Trending
On Facebook various lawyers recently have been posting invitations to attend public seminars they are presenting on the topic of estate planning. Some years ago, when there was an earlier surge of these offerings, I attended several, to see what they were about. Normally, I heard exaggerated descriptions of how complicated and expensive the state probate process (the steps involved in settling an estate) is and how much better off we all would be to circumvent our assets at death from going through that system by creating a trust now and transferring most of our assets into that trust, in order to "avoid probate."
As a result, when people give me the privilege of drafting documents for them, they often ask, "Do I need a trust?" The answer depends upon their needs. Let's look at what a trust is, what it does and situations when having one might help. In my office, when someone asks that question, I get a pretty coffee cup from a shelf to use as a visual aid.
A trust, although complex, does not have to be complicated to understand. A trust is a container, like the coffee cup. As with the cup, the trust's purpose is to hold what is put in it, to be used according to the cup owner's wishes. The trust, like the cup, will address two time periods: It will hold and manage what has been put into it for as long as the owner wants; then, once the owner no longer wants the stuff to remain in the trust (cup), the trust will say who is to get it. When the cup owner is done drinking from the cup, any remaining coffee usually is poured down the drain. When the trust has finished serving its purpose, any remaining assets are distributed to whoever the cup owner wants to have them.
The coffee cup is controlled by whoever's hand is holding the cup's handle. That person, called the "trustee," is selected by the client creating the cup. Sometimes that person is the creator of the trust; sometimes the trustee is someone else or a bank.
The "birth certificate" for a trust is the legal document which creates it, often called a "declaration of trust" or "trust agreement". A trust can be created and put in service while the creator is living, or it can be created as part of the creator's last will and testament. Those that take effect while the creator is alive are called "living" or "inter vivos" trusts. Those that are created in the creator's will are called "testamentary" trusts.
Like the coffee cup, a trust is a separate creature from the person who creates it. When the cup's creator dies, the trust may carry on into the future. Since the creator does not own the assets in the trust when he dies (they belong to the trust, not to him personally), the assets in the trust are not part of the creator's estate and do not have to go through probate. This is true even if the trust is to end at the death of the creator. Since the trust is a legal creature, not a human mortal, what it owns when it ends can be distributed without going through probate.
Let's look at a few situations when a trust would be useful:
1. My situation. I am unmarried and 81 years old. Although my mind has remained strong and clear, it might not always be that way. Having seen friends who became easy targets taken advantage of by unscrupulous "friends," I wanted to protect myself from that risk. I created a "living trust" and put most of my assets into it. I named myself as trustee so I have remained in control of my own stuff now owned by the trust. I also provided a workable way that if my family or friends see unscrupulous people taking advantage of me, or if I show considerable poor business judgment, I can be replaced as trustee by the bank I selected, thereby protecting me from my own future weakness. Upon my death, the trust will end and whatever is left in it will be divided among relatives and friends I have specified in the trust.
2. My friend who cannot manage money. I have a warm, loving friend who is a wonderful person. But, he has no concept of how to manage money. I want to leave a sizable portion of my estate to him when I die, but left on his own he will lose it quickly. So, in my last will and testament, I left my friend's share of my estate to a trust that will be created in my will after I die to receive his inheritance and I named his loving son, who is an astute businessman, as the trustee. I gave the trustee authority to spend the inheritance on anything his father would want, except, to protect the inheritance from the cost if my friend needs nursing home care, I provided that his trust cannot spend trust money on things the government otherwise would pay for. Then, I provided that when my friend dies, whatever is left in his trust will go to benefit an organization that is important to both my friend and me.
3. My disabled child is coming into some money of his own, which will make him "too rich" to get the government disability benefits on which he depends. Many disabled people are dependent upon disability programs, such as SSI and Medicaid, to meet their financial needs and provide their health insurance coverage. They can receive this help only if their assets are limited and modest. If they directly receive money from, say, an inheritance or an automobile accident injury settlement, the money will make them "too rich" to get the benefits they depend on. The new money will be more problem than blessing. In such case, the disabled person, if able, or his parent, guardian, grandparent or court can create a special supplemental needs trust, commonly called a "d.4.A." trust (referring to the section of the U. S. Code which authorizes such trusts). When the money the disabled person is receiving is paid to the trustee of a d.4.A. trust, the money can be used to better the disabled person's life, but will not disqualify him from his government disability benefits.
These are but three examples of times when a trust is a good tool to solve the issue. There are others, but not enough room here to discuss them. If you have unique concerns about how to provide for, yet protect yourself or others you care about, discuss the matter with a qualified elder law attorney.
Most people, in my opinion, do not need a trust in their estate plan. West Virginia's probate system is efficient and inexpensive. Due to simplifications in the law and procedures over the past few years, most people are able to settle their loved one's probate estate without even needing to seek help from a lawyer. That, of course, is bad for us poor lawyers, but good for the public. Writing a will, the legal document you can create saying who gets your stuff that goes through the probate system, is dramatically less expensive than the cost of setting up a trust and transferring ownership of your stuff to it. Plus, sometime in the future, when the trust ends, the trustee will incur similar expenses tearing down the trust and passing on the trust's assets. In short, I think in most situations the trusts the seminars are selling are overkill.
* * *
Gerald W. Townsend, is a partner in the law firm of Fluharty & Townsend, where he focuses on elder law, with special emphasis upon Medicaid nursing home planning to save life savings and the home from nursing home costs. He can be reached at jtownsend@fntlawoffices.com.