January 19, 2021

Do I Need a Trust?

Helping you answer the question "Do I need a trust?"

Do I Need A Trust?

A question we sometimes get is, “David, I’ve got the four basic estate planning documents in place, the will, living will, health care surrogate, and power of attorney. But do I need a trust?”

In this short and informative video, David A. Witter, a CERTIFIED FINANCIAL PLANNER™ and Certified Succession Planner™, helps answer the question, “Do I need a trust?”

Even when you have the four basic documents in place, (a Will, a Living Will, a Healthcare Surrogate, and Power of Attorney) you may wonder, who needs a trust, and more importantly, “do I need a trust in order to protect my family and my interests?”

David recommends you start with a simple checklist to help you answer this question.

  • Do you have property in another state? This could be family property you’ve inherited or perhaps your vacation getaway. If so, at the time of your passing there will be probate proceedings in both your home state where you reside and own property and, in the state where your secondary property is located. If, however, a trust owns your secondary property, you have then eliminated the requirement to deal with probate in the non-residence state. See below for an example.
  • Is your estate large, complex, or growing If so, a trust can really help with administration, bringing to it organization and reducing probate costs.
  • Do you need control or to have a say in how money is left to  loved ones? Examples of possible situations which would make you feel the need for more control include leaving your inheritance to a young adult who lacks maturity to make wise decisions or to a special needs child. In these types of situations, a trust can protect assets for your loved one who might not yet be ready to manage these assets for him or herself. In the case of a special needs child, lack of a trust could mean that the receipt of an inheritance disqualifies your child from also receiving valued state or federal benefits.
  • Are you trying to protect assets that you’ll leave to loved ones from divorce or litigation? Whether you are considering your spouse, your children, or other heirs, circumstances could arise that result in their inheritance falling into someone else’s hands. If you are concerned about this, a trust will help you control and protect your assets into the future.

Every situation is unique. The team at Financial Harvest is here to help you and provide you with thoughtful, personalized guidance.

Summary and Examples

Estate Planning Basics:

  • Will
  • Living Will
  • Health Care Surrogate
  • Power of Attorney

Property in Another State?

I think the way to think about that is to kind of go through a checklist. The first one would be, do you have property in another state? Let’s look at an example:

Probate: Florida & N.C.

Let’s say that you have a house up in the mountains in North Carolina, as an example. And a home in Florida. If you pass, there would be probate proceedings in both Florida and in North Carolina, and that would be more costly.

A Trust Could Own N.C. House

But a trust could actually own your house up in North Carolina, and then that would avoid probate.

That flows into the second one, which is as your estate gets larger and more complex, usually, a trust really helps with the administration of that to bring organization to it in reducing probate cost.

A Trust Helps:

  • Administration
  • Organization
  • Reduce Probate Costs

Do You Need Financial Control?

A third area to think about is the loved ones that you’re leaving the money to. Do you need to have some control or have some say in how that money goes to them?

  • Special Needs/Special Trust
  • Financial Maturity
  • Discretion of Trustee

One example might be a special needs child. You need to have a special trust in place just for that so that it doesn’t disqualify them from getting maybe some state aid.

Or, maybe you’re concerned about the financial maturity of the loved one that you’re leaving the money to. Do you want to control the trust by a certain age?

Do you want the trust to be incentive-based where they have a certain income that they’ve earned? Or do you want to leave it to the discretion of the trustee at that point in time, so it gives more control?

Protect Family Assets from Loss

The last thing I would say that you should consider is how worried are you about protecting the assets that you’ll leave to loved ones from maybe divorce?

If you have a son or daughter and you’re worried that if they go through a divorce, you want to make sure that the assets stay in your family. Or, if your son or daughter may one day have litigation against them. That’s another way that a trust can be really useful for is asset protection.

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