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Is a trust right for me?

While a surprisingly low percentage of Americans have a will or estate plan ready, only a fraction of those have taken the step of establishing a trust to control their assets.

The "trust fund baby" is a common term that's used to deride wealthy heirs but, in truth, a trust fund isn't just a tool for the wealthy to systematically pass along their wealth, it's an accessible arrangement for anyone who would like to control his or her assets upon death more cost effectively and more conveniently.

Will vs. trust

A will is a less complex legal document that details who gets what upon death. It's a way to distribute assets as you choose, but it's subject to the probate process before anything changes hands. Legal fees are withdrawn, decisions can be contested, and a will is public record -- meaning that anyone can learn not only what you possessed, but who has it now.

Under a broad definition, a trust is an entity that holds your assets. You create a trust, name a trustee to manage it and choose beneficiaries who will receive those assets. Ownership of property or funds remains under your control, but through a separate legal entity.

There are many different trusts but the two most common types are revocable and irrevocable trusts. In a revocable trust, you continue to manage the assets through your life. In an irrevocable trust, you must name a trustee to manage the account. By removing your name from the assets, an irrevocable trust is not subject to estate taxes.

The benefits of a trust

With so many trusts available, each offers distinct advantages and challenges that can be explained in depth by an expert estate attorney.

Advantages of a revocable trust include control of the account, even after death. A namesake can determine payments, distribution and even protection of the funds. A trust can schedule calendar-based payouts to a spendthrift relation (the "trust fund baby" example), but also offers stipulations on funds to blood relatives in case of an heir's later divorce or adding a layer of protection from any creditors your heirs may have.

As mentioned earlier, many associate the trust as a way to reduce estate tax. This can help transition high value assets without the tax burden, meaning it increases the value of an inheritance.

Similarly, trusts are not subject to probate. They take effect immediately and, especially with larger estates, streamline the ownership transition from the deceased to the heir. Fees can consume 5% to 7% of your estate through probate.

Trusts remain private, keeping your wealth or possessions personal and in the family instead of public record.

Trusts can also include stipulations for mental capacity and special needs. As you age, you can assign important decision-making power.

Limitations of a trust

While trusts offer many advantages, they do come with unique challenges.

Given their variety and different types, they require more legal work and come at a higher cost than a will.

To manage a trust properly, assets and existing accounts must be connected to the trust, such as updating beneficiary information. Updating a title, deed or IRA is an additional but necessary process.

Making changes can be cumbersome because trusts are mired in documentation. For example, if a spouse is named as trustee but later becomes incapable for mental health reasons.

The value of your estate affects how it is handled in probate. Generally, low value estates move through probate quickly and have lower fees.

If the most valuable assets in your estate already names beneficiaries, these assets will not need to pass through probate in the first place.

Trusts are complex and they require the assistance of a qualified expert to serve you and your heirs best. Once arranged, they are customizable and flexible to meet unique needs and wishes, making them best as a multi-faceted estate plan with a will to cover any missing topics.

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10505 N. 69th Street, Suite 1400
Scottsdale, AZ 85253

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