Should You Have a Trust

There are several reasons why a person may create a trust as part of their estate planning documents. The most common reason is to avoid probate but a trust is also useful for 1) asset protection; 2) if you have real estate in another state; 3) a beneficiary has special needs or 4) to have ‘strings' on the distribution to your beneficiaries.

Trust to Avoid Probate

The most common type of trust that individuals create is a Revocable Living Trust. As the name implies this is a trust document that can be revoked until the creator passes away.

By creating a trust and having the trust properly funded, then upon your passing your assets will avoid the local probate court. By avoiding probate, you will maintain your privacy along with having a much more efficient and quicker transfer of your assets to your beneficiaries. Often an asset can be transferred to the beneficiaries of a trust within a few weeks as opposed to months under probate.

Trust for Asset Protection

A trust can also be created to protect your assets from not only your creditors but also from potential or actual creditors of a beneficiary. In the State of Ohio, a person can create a Domestic Asset Protection Trust (DAPT)[1]  A DAPT trust if properly drafted and properly funded will protect your assets from future creditors who may try to go after your assets. A DAPT trust can also provide protections to your beneficiaries in the event that a creditor is chasing after them.

Real Estate in Another State

If you own real estate in another State, then an ‘ancillary' probate administration would have to be opened up in the second state. For example, if a person is a residence of Ohio but has a vacation home in Florida. Then upon the persons passing, their estate would have to open a Probate Administration in Ohio and a second Probate Administration in Florida. This will then take more time and money in attorney fees to transfer the real estate to the designated beneficiaries. If the person has a trust and has titled not only their Ohio real estate but also their Florida real estate in the trust, then the Florida probate is avoided.

Trust for Special Needs.

If you have a child or grandchild who has special needs, then you may want to create a trust for the benefit of your loved one. If an individual is on some type of government assistance such as Medicaid or Supplemental Social Security, then there are statutory limits on how much that person can own in assets.  If the special needs person were to inherit some money, then they may inadvertently lose their government assistance.

Placing Strings on Distribution to Beneficiaries.

A Trust is also a very good way to place some ‘strings' on the distribution of an inheritance to a person. It is not that uncommon for a client to have a child who is financially immature for their age or is in their early 20's and the child just wants to have fun and has no direction in their life. A parent does not want to leave a large inheritance outright to their child. The parent knows that it took them a lifetime to build up their assets and they do not want their child to spend it all in one or two years.  

A parent can then set up a trust whereby the child only receives ‘income' from the trust or the child receives their trust share upon reaching a certain age or graduating from college. By placing ‘strings' on the child's trust share, the parent can be assured that the child's inheritance will not be spent all at once.

There are a variety of other circumstances as to why a trust may be a good estate planning vehicle for a person to utilize. However, every person's situation is different and unique and not everyone should have a trust.

If you have any questions about this Article or about whether a trust is right for your estate plan, please contact us and we would be more than happy to speak with you.

[1] O.R.C. 5816