When do I need a trust?

The coronavirus pandemic provided a lot of time to consider our own mortality. This may have provided some initiative to get our affairs in order. This decision likely led to a lot of questions for those of us who have decided to either put together an update an estate plan. One of the more common: when do I need a trust?

What is a trust?

A trust is a legal tool that can be used within an estate plan. This tool provides the creator with a greater level of control over the distribution of their assets. The creator will name a trustee to administer the trust. Depending on the type of trust, this could be the creator, another individual or a financial or legal institution.

Those who choose to use a trust may want to set aside some funds to help pay for higher level education or the health needs of their children or grandchildren. This is possible, because instead of simply giving you heirs a large sum at one time, a trust can spread out the funds in regular payments at set intervals.

How do I know if I need a trust as part of my estate plan?

Although the exact answer will depend on the details of your situation, some general rules that can help you decide whether to use a trust or not include:

• Having young children. If you have minors, you can create a trust to help ensure their caretaker gets funds to help cover the costs that come with their upbringing, provide money to cover college expenses and even help with a down payment for a home in the future.
• Disabilities. A trust can also provide funds to help cover the expenses needed to care for a child or loved one with a mental or physical disability. When structured wisely, these trusts can help to better ensure the funds supplement other sources of income without impacting their ability to receive public assistance disability benefits like Social Security.
• Privacy. A will generally goes through probate — a public court proceeding. A trust does not. This means you are more likely to keep the details of your estate private by using a trust.

These are just a few things to think about when considering a trust. You will also need to decide if you want the trust to help reduce tax obligations or protect assets from creditors. These decisions will impact the type of trust you choose.