I have received a number of calls about estate planning and it is very interesting how many people believe that they MUST have a trust as part of their estate plan. At first, I thought this meant that these individuals had spent some time reading about estate planning, which is wonderful. I am a big proponent of educating oneself. However, in too many of these cases, I learned that this belief was based solely upon the “advice” they received while attending a seminar, often over dinner at a nice restaurant or by attending a “free” webinar.
Like the presenters of these events, I believe that trusts are extremely valuable tools and the incorporation of a trust as part of one’s estate plan should be carefully considered. Where I differ, however, is that I do not believe that the use of a trust is right for everyone. Unlike a Will, Advance Medical Directive and Durable Power of Attorney, the decision to incorporate a trust into your plan should be based upon careful consideration of a number of factors.
So, what are some of the key factors:
Are you concerned about a potential incapacity? Do you anticipate having someone assume management of some, or all, of your financial affairs?
Size and Nature of Your Estate
What is the value of your estate? Do you own real estate in multiple states or even countries? Do you have business interests that you want to be managed and maintained for your heirs?
Who are the intended recipients of your assets? Are any of them minors, have special needs or suffer from a disability? Are you concerned about their ability to manage wealth or the potential loss of wealth in the event of a divorce or a creditor claim?
Do you intend to leave your estate outright to your beneficiaries? Do you want to benefit multiple people with some portion of your estate over a period of time (i.e., a pool of funds to provide educational assistance to all of your grandchildren)? Do you want to provide protection from the claims of a divorcing spouse and creditors? Do you want to provide for professional management of your estate while your beneficiaries are young or do not possess the knowledge and experience to manage the inheritance?
Generally the terms of a trust remain a private matter, whereas the terms of a will become a matter of public record.
Including a trust in your estate plan will increase the cost of preparing the documents. After your death, the trust becomes a separate and distinct taxpayer so there will be costs associated with preparing the income tax return. There may also be a fee charged by the trustee to manage the trust assets.
A trust adds complexity. It is a separate legal entity which must be managed properly.
In summary, the decision to include a trust as part of your plan should be based on an analysis of your unique situation and an evaluation of the costs and benefits of the trust. Situations change and this decision should be re-evaluated during your periodic estate plan reviews. If you would like to learn more, please call to schedule an appointment.
Dawn M. Dale, JD, LL.M., CFP®
McLean, Virginia 22102