Most Americans don’t realize that they have an estate. Most people think that an “estate” includes a mansion in the hills, a private jet, or millions of dollars in investment accounts. But the true definition of “estate” is a person’s possessions or property—regardless of the size or amount. Everybody has an estate; and if you own a home, have a retirement account, or have any personal property of value you should consider creating a trust for your “estate.”
Trusts come in lots of flavors. They can accomplish all sorts of fancy tax planning, can include certain family members but not others, can run scholarships or foundations – the things you can do with a trust are endless. But most clients in my office need what I call the “plain vanilla” trust. That’s a straight-forward revocable family trust. Mind you, it’s still twenty pages long and takes hours to put together, but within the world of trusts, this is the simple one. The one that most of us should have, the one that I have set up for my family.
A revocable family trust serves two main purposes. The first goal – the one everyone thinks about – is that it will distribute your stuff after you die. It substitutes for the will. Within your trust, you do what you typically think of as the will’s job – you say how your want your estate distributed after you die. Usually people split their assets equally among their children, but that’s not always the case. We can designate whomever you want and in whatever portions you want under your trust (we can do that under a will, too, but right now we are talking about trusts).
So why would we use a trust instead of a will? Simple answer: it will save your family lots of headaches. If you don’t direct your assets to a trust, and instead just leave all your assets in your own name, then when you die those assets will be governed by your will. So far so good. But after you die, there has to be a legal process of changing title on your assets from your name to the people you’ve named in your will. That legal process is called the “probate process.” It requires that your children work with an attorney, go through the court’s system (which can take at least a year, quite often longer), complete lots of paperwork, and spend plenty of money on court fees and attorney’s fees. If you instead set up a trust now and take the time to transfer your assets to your trust now, then after your death, your children have precious little to do. The trust will already own the assets. Now the trustee (probably one of your children) just has to review bank statements, sell the home, and cut checks to all your beneficiaries. The trustee will have some work to do, but an awful lot less work compared to taking all of your assets through the probate process.
Another reason to have a trust – and this is the reason that no one thinks about except us lawyers who think of all the “what if’s” – is to protect you while you are living. If you transfer your assets to your trust now, and you go on vacation or are in the hospital or develop dementia, then your successor trustee (usually a child, sometimes a sibling or best friend) can take over managing your assets. Bills will be paid, that CD will be renewed when the maturity notice comes in the mail, etc. Your successor trustee steps into your shoes and manages your money, so things continue seamlessly, even though you are unable to manage your own affairs. What a relief.
I should clarify what it means to “transfer your assets to your trust.” That’s really a fancy way of saying that you are “changing the name” on your accounts. For example, if you have a money market at the bank in your name, then after you sign the trust, I would tell you to call the bank and have them change the owner of the money market from you individually to the revocable family trust that you just signed. They will probably have you complete a new signature card.
Since you will be the trustee of your trust, nothing will feel any different on a day to day basis – you are still the one accessing your accounts, reviewing statements, paying bills, etc. The difference is that you have a Plan. If you need help managing your assets during your lifetime, you have empowered your successor trustee to step in and take care of you. And you have lined up your assets so that your family will not have to deal with the hassle and cost of probate after you pass away. A plan. Feels good, doesn’t it?