More and more people are choosing to include a trust as one of those additional components. While only a lengthy consultation with your estate planning attorney can help you make the final decision, answering some basic questions may help you decide if a trust is right for you and if so, which one works for your estate plan.

1. TRUSTS AND
ESTATE PLANNING
Determining if a Trust is Right for You
Geoffrey Garrett
Estate Planning Attorney

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Your Last Will and Testament is the cornerstone of your estate
plan; however, for most people, an estate plan does not stop
there. Various other estate planning tools are typically used in
order to create a comprehensive estate plan that covers all the
various facets of estate planning.
More and more people are choosing to include a trust as one of those
additional components. While only a lengthy consultation with your estate
planning attorney can help you make the final decision, answering some
basic questions may help you decide if a trust is right for you and if so,
which one works for your estate plan.
TRUST BASICS
Decades ago, trusts were used primarily by wealthy families who were
trying to keep the family fortune in the family. Today, trusts have evolved to
the point where even the average individual can benefit from a trust.
Whether a trust is intended to guard the family fortune, or simply provide
for the family pet, all trusts operate on the same concept and require the
same four elements. At its simplest, a trust is a legal entity wherein you give
fiduciary control over assets to a person or institution for the benefit of a
third party. To create a trust, you need a trustor (the person who creates the
trust), a trustee (the person who manages the trust assets and administers
the trust), trust assets to fund the trust, and beneficiaries.

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WHEN DO YOU WANT THE TRUST TO BECOME EFFECTIVE?
Trusts that are created within your Last Will and Testament are referred to as
testamentary trusts and do not become effective until your death. Trusts
made outside of your Will are intervivos, or living trusts and become
effective when properly signed and funded.
Typically, a testamentary trust
is used when you have small
children whom you wish to
provide for in the event of
your death but to whom you
cannot leave assets directly.
Other common reasons to
choose a testamentary trust are when you are creating a pet trust or a
charitable trust.
One important consideration when deciding between testamentary and
living trusts is property ownership. Property used to fund a testamentary
trust will remain yours until death whereas property used to fund a living
trust may or may not remain yours depending on whether you make that
trust revocable or irrevocable. Keep in mind that all assets owned by you at
the time of death are subject to estate taxation. Therefore, if you own
considerable assets, an irrevocable living trust may be a better choice.

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Do You Want the Ability to Make Changes to Your Trust?
Another important consideration is whether you want to create a revocable
or irrevocable trust. Testamentary trusts are always revocable up to the
point of death because they are part of your Will which can always be
revoked. A living trust, on the other hand, can be either.
The primary advantage to an irrevocable living trust is that assets used to
fund the trust are transferred out of your name and, therefore, are no
longer subject to taxation. This can be a significant benefit for a taxpayer
with high value assets or assets that will likely appreciate considerably over
the years.
Do not, however, overlook the primary disadvantage – an irrevocable trust
is exactly that –irrevocable. If, for example, you create a trust and name all
four of your children as beneficiaries and then have a falling out with one
down the road, you cannot remove the beneficiary from the trust. Likewise,
if your trust terms dictate that distributions are to begin when the
beneficiaries reach the age of 21, but your 21 year old beneficiary develops
a drug or alcohol problem, you cannot change the terms of distribution.
Whom Should You Choose As Trustee?
This is one of the biggest decisions you will make if you create a trust. Your
trustee has both a tremendous amount of power and a considerable
amount of responsibility. Even a simple trust requires detailed record-

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keeping, ongoing correspondence with beneficiaries, and yearly tax
preparation because a trust is a separate legal entity.
The more complex your trust, the more experienced your trustee needs to
be. While many grantors initially consider appointing a family member as
trustee, most ultimately choose a professional for the position. Even if a
family member has the experience and education required for the position,
it is often better to appoint someone who will not be emotionally involved
in trust decisions.
This is particularly true if your prospective trustee is also a beneficiary under
the terms of the trust. A trustee must always act in the best interest of all
beneficiaries which can be difficult to do when the trustee is a beneficiary
or when the beneficiaries are his or her family members. Furthermore, it can
create discord or outright hostility on the part of family members if one
sibling, or family member, is appointed to the position instead of other
potential candidates.
How Much Discretion Should You Give Your Trustee?
This can be a very difficult decision to make. On the one hand, if you are
too detailed in the creation of your trust terms, you can inadvertently tie
your trustee’s hands if an unusual circumstance comes up. On the other
hand, giving a trustee too much discretion can result in outcomes that you
did not expect or authorize. It can also lead to a squandering of trust assets
by the beneficiaries in a worst case scenario. This is precisely why your

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choice of trustee is so important. Most experts agree that a trustee should
have a certain amount of discretion to deal with unexpected events;
however, this means that your trustee must be competent and trustworthy.
When Does the Average Person Need a Trust?
Complex trusts such as dynasty trusts, grantor retained annuity trusts
(GRATs), and generation skipping trusts have historically been aimed at
taxpayers who have valuable estate assets to protect. There are, however, a
variety of circumstances that the average person faces that could warrant
the creation of a trust, including:
Providing for a pet – a pet trust can be created to ensure that your
family pet is well cared for after your death.
Supporting a special needs child – children with special needs
frequently need assistance from federal or state programs such a
Medicaid or SSI. In order to ensure they will qualify for those
programs while still holding on to your resources, you may want to
create a special needs trust.
Protecting a beneficiary from himself – if you have a child or
grandchild who is too young to know how to handle money, or is
simply irresponsible with money, a spendthrift trust can protect the
assets you leave to him from creditors while still providing financial
support.

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Once you understand the basics of a trust, and answer some of the above
questions, you should be ready to consult with your estate planning
attorney to determine if the addition of a trust would benefit your estate
plan.
Living Trust Network ---Types of Trusts
American Bar Association -- Trusts