This is another in a series of blogs on the basics of estate planning. Last week, we looked at the taxation of trusts. This week, we’ll look at some of the reasons we use trusts.

There are many reasons to use a trust. Here are a few:

• Probate avoidance. This is not the most important reason, but it is the reason most attorneys think of first. At death, the assets titled in the name of the individual must go through a process to retitle the assets to the appropriate people who’ve inherited them. In some states this process may be rather simple, while in other states it may be cumbersome. There may be substantial legal and court costs associated with the probate process, as well.
• Privacy. A trust is a private document. A will, on the other hand, must be filed in the probate court before it is determined to be valid. This process called probate is a public process (except in very rare circumstances). Thus, everyone who wishes may know the contents of the will and the assets which were part of the probate estate. So, for example, they would know about the child born out of wedlock who received an inheritance or the child who was disinherited because of a family dispute. The nosy neighbor would know the dirty laundry and could spread the gossip. Also, predators would know how much money beneficiaries are inheriting. For example, they might know that a weak-willed beneficiary is inheriting $200,000 and could be approached for money. So, if a client is at all concerned about privacy, a trust will serve their needs better than a will.
• Incapacity planning. A will does nothing to help with incapacity planning. As is often said, a will only “speaks” at death. So, if the testator is not dead, the will does not control anything, even if the testator is incapacitated. Conversely, a trust can provide for the management of the assets upon the grantor’s incapacity. This is one of the great benefits of a trust compared to a will. The trust can have whatever standard is desired to determine incapacity. For example, it could require the certification of one or two physicians.
• Management. A trust can provide a vehicle for the management of assets during life and after death. Often, even if a grantor of a trust has capacity, they may reach a time in their life when they no longer wish to manage their assets. A trust provides a simple mechanism for this to happen. The grantor, who typically serves as the initial trustee, simply resigns and the person who was named as the successor trustee is notified and takes on the management responsibilities.

In addition to the benefits which revocable trusts have which wills do not, the trust has other capabilities which wills can also achieve. For example, trusts and wills both can save estate taxes, spawn trusts for beneficiaries at the death of the grantor/testator, etc.

In upcoming blogs, I’ll discuss whom you should choose as trustee. In another blog, I’ll discuss various ways in which you could leave assets to beneficiaries, and the pros and cons of each method.

Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com