By Gina M. Barry
Partner, Bacon Wilson P.C.
Many people believe that it is best to establish a revocable trust, also known as a living trust, to simplify their estate upon their passing. Although trusts can be extremely useful when used appropriately, establishing and funding a trust can be an expensive and time-consuming process. In addition, many estate plans do not require a trust for stated goals to be met. To determine whether a trust is right for you, it is first necessary to understand the difference between a will and a trust.
How a will works
Both wills and trusts are devices that you can use to distribute your estate upon your death. A will gives instructions to the personal representative (formerly the executor)of your estate) as to the distribution of the assets in your probate estate. Your probate estate consists of assets that, upon your passing, are held in your name alone and do not have a designated beneficiary.
In order for a will to “speak,” probate must be opened. Somewhat simplified, probate is a state court proceeding in which your will is proven, your debts are paid, and your remaining property is transferred to your beneficiaries as directed in your will.
The negative aspects associated with probate are (1) expense; (b) time — at least one year to complete, although the process may span several years; and (c) burden on family members who will need to manage substantial administrative work.
How a trust works
A revocable trust is a written declaration in which you state that you are transferring your property into a trust for the benefit of yourself during your lifetime and for the benefit of your beneficiaries after you have passed away. Since the trust is revocable, you would have the power to amend or revoke your trust during your lifetime.
A revocable trust typically involves three parties: the grantor, the trustee, and the beneficiary.
Funding a trust
Once a revocable trust is established, you would need to fund your trust in order to avoid probate upon your passing and ensure that the trust instructions are followed.
Funding a trust simply means changing the title of your assets from your name individually to the name of your trust or updating beneficiary designations to name the trust. Assuming you have transferred or beneficiaried all of your assets to the trust, upon your passing, the trust would already have custody of your assets, so there would be no probate, no lengthy delays in distribution, less fees and costs, and less administrative work for your family members.
If the only reason that you would establish a trust is to avoid probate, a trust may not be necessary. In many cases, will substitutes, such as joint ownership and beneficiary designations, will allow your estate to pass to your beneficiaries without the necessity of probate.
Benefits of a trust
A revocable trust can also provide ongoing protection for your beneficiaries. If a desired beneficiary is a minor, the trust can hold the funds and distribute them for designated purposes until the beneficiary reaches an age that you deem appropriate for them to receive the balance outright. If a desired beneficiary has a disability, a trust can also protect government benefits while allowing the beneficiary the benefit of the trust funds to improve their quality of life. Further, if a desired beneficiary has difficulties with managing their finances, the trust can hold the funds to be distributed according to the terms of the trust that you set when establishing the trust.
As there are many possibilities with respect to trust planning, it is best to contact a competent advisor to discuss your particular situation and your specific goals to determine whether a trust is appropriate for your estate plan.
Gina M. Barry is a shareholder with the law firm of Bacon Wilson, P.C., Attorneys at Law. She is a member of the National Academy of Elder Law Attorneys, the Estate Planning Council, and the Western Massachusetts Elder Care Professionals Association. She concentrates her practice in the areas of estate and asset protection planning, probate administration, guardianships, conservatorships, and residential real estate. Gina may be reached at (413) 781-0560 or gbarry@baconwilson.com.