Should I Have a Trust?

This has to be one of the most common questions posed to me. And the answer is not necessarily simple, but there are definitely some guidelines that I use to determine whether I should recommend trust-based planning. We’ll start with the revocable living trust, the most common type of trust – this is the trust that is basically used to avoid probate; the trustmakers can revoke or change its terms at any time, they generally remain the trustees and in full control of the trust assets for as long as they are alive and competent. My guess would be that 99% of the trusts in existence in the U. S. are (or were, before the trustmaker(s) died) this kind of trust.

First, a caveat. Although one of the main reasons that people create trusts is to avoid probate, in at least half of the cases that I have been called upon to help settle a trust after someone has died, a probate was necessary even though there was a trust! Why is this? Usually, because the deceased person had some substantial assets that they hadn’t put into their trust (this is called “funding” the trust). This can happen for many reasons. Sometimes people just forget, or don’t want to go to the trouble of transferring an asset. Sometimes people inherit assets and die before they can receive the asset and transfer it to their trust. Sometimes people are involved in litigation when they die, and don’t receive a settlement or award until after death.  Trusts can be useful even if not funded, but obviously if the purpose is to avoid probate, having substantial assets (including ANY real estate, even a timeshare) that is not in the trust will frustrate this purpose. I have put a purple “F” by each reason that requires that the trust be fully funded in order to meet the specified objective. If there is no “F”, the objective may be met by creating a trust that is funded only through a will, which would need to go through probate in order to get the assets into the trust.

So, when should you definitely consider creating, and funding, a revocable living trust?