Do I Need a Revocable Trust?

A common question I get asked is “Do I need a Trust?” and of course the classic lawyer answer is “It depends.”  A common misconception regarding Trusts is that they are only needed for complex situations or high net-worth individuals. While Trusts are absolutely recommended for complex situations and high net-worth individuals,  the majority of the Trusts I draft are due to (1) minor or young beneficiaries and (2) ease of administration:

Minor or Young Beneficiaries: Probably the most common reason I recommend a Trust is if there are minor or young beneficiaries. If a minor is listed directly as a beneficiary on an account or as a beneficiary under a Will, they will inherit such asset, but not without complications. A minor cannot inherit assets directly, so in those cases, there will be court involvement ranging from requiring a minor estate to be opened to a court appointing a fiduciary to micromanage the assets. The fees and costs associated, as well as the administrative time, can be extensive.

Another similar situation is when a beneficiary is over 18, but is still young and inherits a substantial amount of money. Often this can result in the beneficiary mismanaging the funds, quickly exhausting an inheritance that was intended to pay educational expenses and last for years. This can also apply to any beneficiary who would benefit from someone else managing assets on their behalf, regardless of their age.

The easiest and simplest solution for minor and young beneficiaries is to have a Revocable Trust that is drafted to allow for assets to be managed on behalf of the beneficiary until a certain age, life event, or even for their lifetime. Having a Revocable Trust in place will mean limited to no court involvement. You also get to name the fiduciary who will be managing the assets, and you control the terms of distribution (e.g. used for health and education until the beneficiary is 25 years of age). A Revocable Trust can be amended over time as circumstances change and still works well even if all of the beneficiaries are well into adulthood when you pass away, as it offers ease of administration and other benefits.   

Ease of Administration: The second most common reason I recommend a Trust is ease of administration. Instead of listing numerous beneficiaries on each financial account, having to calculate and constantly change percentages going to each beneficiary, and uncertainty as to how to handle assets where a beneficiary cannot be named, a Trust can be used to hold all of your assets and make distributions to the beneficiaries. The Trust becomes the sole beneficiary or owner of all assets and the terms of the Trust control how and to whom the assets are distributed. This allows for limited to no probate (the court process for distributing your assets), keeps your affairs private (Wills are public record, while a Trust is not), accounts for distribution of assets that don’t allow for beneficiary designation, makes it easier for you to update your beneficiaries as only the Trust needs to be amended for changes, and, in general, provides a seamless process for your loved ones to gather, manage, and distribute their inheritance.

There are many other reasons why a Trust may be the best solution, or it may be the case that all that is needed is a simple Will. If you would like to discuss your specific circumstances please contact us for a consultation.

Underrated Estate Documents 

The most underrated estate documents are Medical Directives and Powers of Attorney. I strongly recommend anyone over the age of 18 have a Medical Directive and Power of Attorney in place for general use.

A Medical Directive allows you to name a Medical Agent, who will make healthcare decisions for you in the event you are unable to make them yourself (e.g. this can be for a short time after an accident or during surgery or for a longer period of time due to dementia or incapacity). The document also allows you to express your end of life wishes (traditionally known as a Living Will), any specifics related to medical treatments you wish to receive or never wish to receive, share your feelings on organ donation, and provide burial/funeral wishes.

While most states have default laws as to who can make these types of decisions, it is not always clear-cut and problems often arise when there are disagreements among family members at a time when emotions are high. Unfortunately, this can delay treatment, require court involvement, and may result in care or treatment that does not align with your wishes. Having a Medical Directive in place allows you to express your wishes and not leave your loved ones to guess as to what type of medical treatment you would have wanted in a specific situation and makes it clear who you have designated as your Medical Agent to make decisions on your behalf.

A Power of Attorney allows you to name an Agent who will step in your shoes and handle your daily legal and financial affairs, such as going to the bank, paying bills, signing forms, etc. This can be drafted to be effective only if you are incapacitated or it can be drafted for current use if you need assistance with these matters, travel often, or simply want to make it as easy as possible for someone to step in and help.

In the absence of a Power of Attorney, often the only solution if an individual is incapacitated is to petition the court for a guardian/conservatorship, a process that can take months. This is true even in the case of married couples, as being married does not give your spouse automatic rights or access to your individual accounts and assets. In order for your spouse to manage such assets, they would need a Power of Attorney or be appointed by the court to manage your affairs. Having a Power of Attorney in place allows you to make the decision now as to who can manage your legal and financial affairs, should the need ever arise and to avoid the court’s guardian/conservatorship process.

If you are interested in learning more about Medical Directives and Powers or Attorney or other estate documents, please contact us for a consultation.