How Do I Know If I Need a Trust?

The world of Trusts can be a confusing topic. You may have heard a friend talk about their Trust at a dinner party and wondered to yourself if you should have a Trust as well. Perhaps your parents had a Trust, and you are wondering if you should be following in their footsteps.  We frequently are asked “Do I need a Trust?”  The answer to that question will always depend on the person’s individual situation and their personal estate planning goals.

There are different types of trusts and different trusts accomplish different goals.  We view trusts as tools just like a hammer is a tool.  If you walk into Home Depot and stand in the aisle for hammers, you’ll look up and see several dozen types of hammers.  There are finish hammers for hanging delicate trim with small nails, roofing hammers to drive nails into shingles, even powder activated hammers to drive bolts into concrete. 

Just like there are multiple types of hammers designed for different jobs, we have just as many trusts designed to accomplish different goals.  A parent with a 10-year-old child needs a trust to manage property for that minor child until they are responsible enough to manage it themselves.  Whereas if your children are in their 40s, they may not need that assistance (or perhaps they still do). 

Do I Need A Trust? Our Trust Toolbox May Provide Insight

Below is a “Trust Toolbox” illustrating some of the more common estate planning goals and which types of trusts can help reach those goals.

Note 1: Certain Testamentary Trusts can provide asset protection for assets passing through probate on the death of the first spouse so that these assets are not countable on a MassHealth application if a surviving spouse later applies for MassHealth.

Note 2: While the assets of a testamentary trust would be included in the estate of the person who passed away, they can be excluded from the estate of the surviving spouse in certain circumstances.

Note 3:  Probate avoidance is only provided to those assets either owned by the trust or passing to the trust by beneficiary designation.  Simply establishing a trust, without adjusting your assets, does not avoid probate.

Note 4:  Some of our most complicated trusts make it so that assets in the trust are non-countable for MassHealth purposes but at the same time included in the taxable estate for tax purposes to reduce future capital gains.  Other irrevocable trusts are designed to remove an asset from someone’s taxable estate for tax purposes.

Note 5:  Certain irrevocable trusts will contain provisions to provide limited control over assets depending on the overall goal.  These provisions might allow you to change who ultimately receives an asset, who can benefit from income generated by the asset, and some trusts allow a grantor to swap assets in an irrevocable trust getting that asset back as long as they replace it with assets of equivalent value.