Many people favor simplicity when establishing estate plans. They try to achieve as much as they can with a will and may feel averse to the creation of additional documents.
Trusts, in particular, may seem quite complex and unnecessarily challenging for people thinking about their legacies and their loved ones. While not every testator needs a trust, there are many scenarios in which creating a trust can be a viable estate planning solution.
Concerns about long-term care
Maybe a testator has limited retirement savings. Perhaps Alzheimer’s disease runs in their family. There are many scenarios in which people may find themselves worrying about long-term care needs. They may need to qualify for Medicaid with little advance notice when their health changes later in life. A trust helps people qualify quickly without triggering a penalty due to gifts or transfers in the five years prior to applying.
Worries about asset protection
People with homes and other valuable assets do not want to lose those resources in their golden years or after their death. Trusts are often an important component of asset protection planning. People establish trusts to protect certain resources from creditor activities while they live on a fixed income in their golden years. Asset protection planning involving trusts can also preserve assets from probate claims made by creditors after their death.
The possibility of estate taxes
Some people can easily pay for long-term care and do not need to worry about losing their assets to creditor actions later in life. However, they may need to worry about taxes diminishing their legacy by consuming as much as 40% of the estate. Funding a trust can be a way to minimize estate tax obligations and optimize what beneficiaries receive.
Complex beneficiary situations
There are many challenging personal circumstances in which a direct inheritance could be vulnerable. A beneficiary in an unhealthy marriage could be at risk of losing some of their inherited assets if they eventually divorce. A beneficiary who has special needs could be at risk of losing key benefits if they receive a large inheritance. Addiction and a variety of other challenging personal scenarios might lead to concerns about beneficiaries losing their inheritance or squandering it. Trusts can be helpful in those circumstances.
Concerns about asset management
Maybe the testator wants their children to share ownership of the family’s lake home after they pass. Maybe their estate includes a successful business. In scenarios where testators want to ensure shared access to resources or where managing inherited resources could prove challenging, establishing a trust can be an effective estate planning strategy.
Creating and funding a trust can offer a variety of benefits, including enhanced long-term control over resources. Testators may want to explore their circumstances at length with their lawyers to determine if their estate plan should include a trust accordingly.