By: Timothy Denker
An old friend of mine called me up and wanted to discuss what he needed for an estate plan. He was single, and had a few things, but nothing significant. My friend had spoken with a couple other attorneys who were suggesting he create a pretty complex estate plan. He was single with no kids, and wanted everything to go to just two people. We walked through the pros and cons of his estate planning options, and the one big question popped up: does he need a trust?
Every person needs to have an estate plan, no matter how simple their situation may be. It only takes one small mistake to significantly reduce the value of the property being inherited and the time it takes to actually inherit it. An instrument commonly used to help avoid that mistake is called a Trust, and a common question clients ask is whether they need one. To be able to assess whether you need a Trust consider a few of the basics.
Trusts come in many different forms and have many different purposes. They are extremely efficient instruments used to plan a person’s estate. Trusts can be living or testamentary; revocable or irrevocable. Trusts help avoid probate and paying estate taxes. They also help protect the assets and the beneficiaries of the estate. When used properly they will save your family all of the money, headache, time and hassle that could be incurred in an improperly planned estate. Everyone could definitely benefit by having a trust.
The main reason I wouldn’t recommend a trust to someone would be if it were not cost effective. One of the first things I ask my clients to do when beginning the estate planning process is to figure out their net worth (assets minus liabilities). This includes real property, bank accounts, life insurance, retirement accounts, debt, etc.; and it usually adds up to more than what most people realize. However, if I look at the estate and see little to no net worth, then consideration needs to be given to a more cost effective estate plan.
Another reason would be if you have a very simple distribution plan. Only having one or two heirs who don’t have their own children can leave things pretty simple, and we can use alternative vehicles to accomplish the plan you want laid out. Any changes to that plan in the future may be a bit time consuming, but could still be worth the savings.
A third possible reason would be if your only asset is a retirement investment account. These accounts have some very stringent rules regarding on-death transfers and the tax benefits of listing a person versus a trust should be explored with a professional.
Essentially, whether you are set up in a Trust is your decision. Your lawyer should provide you with other alternatives as well as the pros and cons of each plan. These alternative plans should all include a Will, but should definitely NOT be limited to just a Will. If an alternative plan to a Trust is used it is very important to remember the following: (1) it will take careful planning to make sure they are following the overall estate plan. Even the most well-crafted Will won’t undo a careless overall plan; (2) the initial efforts of proper titling of the assets are absolutely crucial to the execution of your plan; (3) it will require constant awareness, and maintenance/updating any time there is a change to your family, property or location; and (4) if the only thing in your estate plan is a Will you need to find out what is missing.
Timothy Denker
The Legal Center for New Families LLC
229 SE Douglas, Ste 210
Lee’s Summit, MO 64063
(816) 434-6610
tdenker@lawfornewfamilies.com
