Introduction to Trusts

There are various reasons to create trusts. We may recommend a “trust” in larger estates, estates with young beneficiaries, and in situations where beneficiaries have special needs, or other special circumstances.

What is a trust? Many estate planners explain that a trust is like a “box” where you can place your property. The“box” comes with a set of instructions, i.e., the trust language prepared by your lawyer.

You place your money in the trust during your lifetime or upon your death through your will, and designate a manager, known as a “trustee.” The trustee’s job is to
keep the contents of the box safe. The trustee is required to follow the instructions that came with the trust. Your trustee will distribute the assets and income of the trust beneficiaries in the amounts and at the times you direct.

Of course the money is not really put in a box. The “box” is usually a brokerage account or a bank account where the funds are invested by your trustee.

A grandparent may wish to leave money to grandchildren, but they may be young and at risk of unwise spending. You can name a trustee to be in charge of the money until they attain a certain age. The trustee can be an individual you trust, or a corporate trustee, such as a bank or trust company.

A parent may wish to leave money to a disabled child, but may be afraid to do so for fear of disqualifying that child from government benefits such as Medical Assistance (Medicaid) or Supplemental Security Income (SSI.) Funds can be placed into a supplemental needs trust that supplements the public benefits, but does not disqualify the disabled beneficiary from their benefits.

There are many other types of trusts. Trusts can also be used to set aside money for designated purposes, such as for education. Discretionary trusts can be written to protect spendthrift beneficiaries from squandering their inheritance through wasteful spending habits.

Trusts must be customized for each situation. There are many factors to consider as you decide whether it makes sense to create a trust.

Revocable Living Trusts

Before preparing a living trust, you must determine whether it will be useful for your situation. Living trusts are especially helpful, for example, when you own out-of- state real estate and wish to avoid probate outside Pennsylvania. Some people are confused by the complexity of revocable trusts and may experience or feel a loss of control over the assets in the trust. Moreover, many feel the benefits of a costly trust can be obtained through less expensive alternatives, such as through the use of a general durable power of attorney.

Living trusts are clearly not for everybody. Consumers should approach sales pitches for “revocable living trusts” with a high degree of caution. In recent years a number of older consumers have been defrauded by salespeople who push the supposed benefits of living trusts in “free” seminars and mail solicitations. A consultation with an estate-planning attorney is likely to save your money and your peace of mind by making you aware of options not mentioned by the salesperson who is probably selling annuities.