Trusts are sometimes offered as a “cure all” solution to estate planning problems. It is true that some issues lend themselves to the use of trusts. It is also true, however, that there are states like Pennsylvania, where a trust is not generally necessary and a simple Will can work just as well. So in the individual circumstance how can you tell whether a trust makes sense for you as part of your estate plan? Here are some considerations.
Do you have a special needs beneficiary who might be denied government benefits if he or she were to inherit directly? One of the most common reasons to consider trust planning has been the concern that, without a trust when assets are inherited directly by a special needs beneficiary that person might lose government benefits. A trust in that case could be established either during the lifetime of the person who wants to benefit the special needs individual (referred to as a Third Party Supplemental Needs Trust) or through a will (a Testamentary Common Law Supplemental Needs Trust). It can even be established by a special needs individual himself/herself through a more complicated process known as a (d)4A trust.
Note, however, that not all benefits being received by special needs individuals are necessarily threatened by receipt of an inheritance. The source of the benefits — whether, for instance through SSD (Social Security Disability) or SSI (Supplemental Security Income) can make a difference. The planning is complicated and requires advice from an elder law or estate planning attorney or other professional experienced in these fields.
Does your estate require money management that goes beyond the abilities of anyone you might designate to serve as executor or agent under power of attorney? You might establish a trust in order to place the management of your assets under the care of a professional or organization experienced in handling the type of assets you currently own. There are alternatives which might include giving your executor or agent under power of attorney the authority to delegate some management tasks. The delegation power can be done through the will or power of attorney provisions themselves.
Do you own real estate in other states? If you own real estate or other complicated property in other states you might want to pull all of your assets “under the same umbrella” so to speak to contribute to ease of management. Also, if you own property that you might want to continue in the family — such as a vacation property — you might wish to establish a trust to hold the property and to define the rights and duties of beneficiaries.
Do you want to establish a trust to take advantage of tax — especially federal tax — provisions? There are multiple provisions of the Internal Revenue Code that lend themselves to trusts and trust planning is frequently consulted to accomplish tax goals.
Do you want to establish a trust to manage your funds during your lifetime that would continue on your passing? A revocable living trust (sometimes referred to as a “rev” trust can pull together your assets during life and then pass them on at your death. You should note establishment of a living trust does not significantly change the character of the assets. For instance, assets placed in a living trust continue to use your Social Security number for IRS and other reporting purposes.
Attorneys drafting living trusts typically also prepare wills known as “pour-over wills” that are designed to “pour-over” any assets held in your individual name at the time of your death into the living trust. If you still have assets in your name at the time of your death this might mean your estate still needs “probate” even if you have a living trust.
Finally — consider whether the trust is revocable (the typical “living trust”) or irrevocable. Trusts may be irrevocable or revocable. They might be so-called grantor trusts or non-grantor trusts. They might be established only to provide more detailed instructions than might be contained in a typical will although wills can be tailored to the circumstances.
When considering the benefits or the liabilities of using a trust you need to ask yourself what type of trust is being suggested. Transfer of assets to an irrevocable trust, generally speaking, has much different results than transfer to a revocable living trust. You would need to know the difference.
Janet Colliton, Esq. is a Certified Elder Law Attorney by the National Elder Law Foundation. Her office, Colliton Elder Law Associates, PC practices elder law, life care, special needs, real estate and estate planning and administration, with offices at 790 East Market St., Ste. 250, West Chester, 610-436-6674, [email protected] She is a member of the National Academy of Elder Law Attorneys and, with Jeffrey Jones, CSA, co-founder of Life Transition Services LLC, a service for families with long term care needs.