Estate Planning: Do You Need a Trust?

A dear friend of mine is going through the dual challenges of grieving her father and dealing with the fallout of his lack of estate planning.  We’ve been having conversations about the difficulties people have when it comes to thinking about estate planning; let alone doing it in a way that maximizes wealth for their loved ones when they move on.

[Related: [WATCH] Giving Loved Ones a Hand Up vs a Handout]

As I shared my knowledge about estate planning, we discussed whether or not it was wise to create trusts.  A trust is an arrangement that allows a third party — a trustee – to hold assets on behalf of a beneficiary or beneficiaries.  It’s essentially a document that spells out how you want the assets you have to be distributed to your beneficiaries.  Trusts also allow you to avoid probate and can help keep harmony in your family.

I could tell by my friend’s comments during our conversation that she, like many people, believed trusts to be a financial tool for the wealthy. I pointed out, however, that many financial advisors say a good rule of thumb is that you should consider a trust if you have assets of $100,000 or more, which surprised her.

As with the other documents you’ve created for your estate plan, one of the most important factors in creating a trust is determining who you will want for a trustee. Your trustee is going to manage the funds, invest the asset, make distributions, and possibly have to file a tax return every year for the life of the trust.  Make sure you select someone who is reliable; it’s a tremendous responsibility.

You may also consider a trust depending on your family’s needs. If you have a special needs child or an elderly parent, creating a trust for their benefits could impact whether they qualify for government benefits.  If you put $50k in a trust for your mother, for example, the government could consider that money as part of your mother’s assets, which could disqualify her from eligibility for Medicare benefits.

There are different types of trusts for different purposes, which is why you should always talk to an estates attorney as part of your planning.  If trusts, and overall estate planning, are something you have trouble doing, find your compassion. Think about the pain that comes with losing someone you love — someone you were dependent upon.  Now think about adding a financial nightmare to this person’s period of grieving.  Connect with the part of you that does not want to cause them that pain. Ask a friend to help you stay on track, and begin.