Should You Rethink Your Trust?

A trust is a pretty standard term within estate planning, a "relationship in which the holder of property (or any other transferable right) gives it to another person or entity who must keep and use it solely for the benefit of another person or group of persons who are termed as 'beneficiary'". However, how aware are we of all the variants that encompass a trust? And, when should we stop to rethink whether a trust is adequate for our specific needs? Kiplinger’s recent article, “Four Reasons You Don’t Need a (Revocable) Trust,” sets out some reasons to rethink a trust.

1. Probate avoidance. You can typically attach beneficiaries to the majority of your assets. You can add a transfer-on-death (TOD) to your investment accounts. You can attach them to any taxable account, and the assets will “transfer” according to your wishes outside the court system. A similar concept exists for bank accounts in the form of payable-on-death (POD) designations. Retirement accounts, life insurance and annuity contracts all have beneficiaries attached.
2. Simple wishes. If you want to get your assets to your beneficiaries in a direct manner, a trust is likely unnecessary. However, you will need a trust if you want control over how the assets are distributed beyond your death.
3. Medicaid eligibility. This is where it’s important to differentiate revocable, or living trusts, from irrevocable trusts. The former is primarily used for control and efficiency while distributing your assets. The latter is typically used to reduce your taxable estate. Other tools can help to minimize taxes. However, a stand-alone revocable trust will do nothing to reduce your taxes, since it is tied to your Social Security number.
4. Bad follow-through. Many people go through the hassle and cost of putting together a trust but never follow through and transfer their assets into the trust. That’s the only way it will work. If you plan to use a trust as part of your estate plan, you must transfer ownership of the assets into the trust for it to have any effect. For example, there must be a deed transfer for your home and a title change for your investment accounts. Creating the trust is an expensive waste of time without funding the trust.

If you need help understanding whether a trust is right for your estate planning needs, or if you are going through a probate case, we are always happy to help.  Our Los Angeles probate attorneys can guide you through California's probate process.

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Reference: Kiplinger (Sep. 16, 2023) “Four Reasons You Don’t Need a (Revocable) Trust”