Hi there.
“Do I need a trust?” What people are really asking is: “Do I need to spend the money on a trust?” Neither are the right questions, mostly because there is a lack of understanding when it comes to the different pieces of an estate plan.
I have to start by stating very loudly and very clearly: I’m not an attorney, and this is not legal advice. It is education, based on what I share with my clients when we’re discussing estate planning, as it’s a fundamental part of the financial plan. What I’m sharing here is what I share with my clients, so they know what to ask when they sit down with a licensed attorney.
It’s also important to say that estate law is state law. The rules and the names of the documents can vary wildly from state to state. What’s true in Michigan may not be true in other states. So be sure to check with a local attorney.
First, there are multiple key parts to an estate plan. A trust is just one of them. The question of whether or not you need one comes down to what it can do for you. Let's break down the two major documents: Wills & Trusts.
A will is a list of instructions that take effect when you pass away. It lists who is to be the person to carry out the instructions, and what they’re supposed to do with all your stuff. The will on its own isn’t enough for most institutions though. The will needs to be brought to court where a judge will appoint the nominated person as the executor of the estate (Michigan calls this person a Personal Representative.) The court issues documents – in Michigan, Letters of Authority – that empower the individual to act on behalf of your estate (not you personally). This process is called probate. It’s also important to know that a will won’t supersede things like bank accounts or retirement accounts with listed beneficiaries. In most states that takes precedence.
A trust is not just a fancy will. The trust is a legal container with instructions. You manage it while you’re still alive, but it can persist well after you’ve gone. There are a slew of different types of trusts that do different things, from protecting assets to protecting heirs or a second spouse. We’re focusing on revocable living trusts today. The living trust is a bucket that you can put stuff into: your house, your vehicles, your bank accounts. The issue is that the trust can only act on the things that you put in it. A trust that remains empty won’t do much (and it’s all too common).
A trust can do some things that a will can’t. Sometimes, having a trust means that you can keep your estate out of probate court. Probate is a court process, and much of the file is public record. A trust helps you keep your assets and estate private. It also allows you to have a trustee carry your wishes out if you’re incapacitated.
Asking which is better is the wrong way to look at it. They serve different purposes. Some people need one or the other, but oftentimes it's both that are necessary. What decides it isn’t about how much money you have. It comes down to your unique situation.
I ask it this way: Do you still have children living in the home? If the answer to that is, “yes,” then you need a will. The will is usually where you nominate guardians, as guardianship of minor children goes through the probate courts. A surviving parent with legal custody steps in automatically if something happens to just one of you. The nomination matters most if neither parent is there. Without a will, a judge will determine who should be the guardian of your children, and it may not be who you would have picked.
Naming a guardian in your will decides who raises your kids – it does not make that person the manager of their money. A guardian’s authority over a minor’s property is limited. A meaningful inheritance generally needs a conservator appointed by the court, unless there’s a trust or a custodial arrangement already holding it.
Do you have a plan for the dollars you’re leaving behind that will persist for years? If yes, you need a trust. For example, I have a trust that’s structured to provide for my children after I’m gone. There will be a pool of money that the Trustee (the person responsible for carrying out the trust’s instructions) will dole out to my kiddos at certain times throughout their life, until they reach a certain age.
Even people with a trust usually still need a will. It’s all a part of the package of estate planning documents. The other key documents you get are the Durable Power of Attorney and Medical Directive. Think of them as the financial and medical reins. They empower someone else to act on your behalf while you are still alive (they stop being in effect the moment you pass away). Most people plan for dying. Fewer plan for the years when they’re alive but need someone else to act for them. So these documents are crucial to have even at a young age. Without them, your family would be left without access to your finances and may be unable to make medical decisions without the involvement of the courts. It can be a lengthy process, adding stress during one of the most stressful times of your loved ones’ lives.
In my experience, what keeps most people from looking into getting a trust are the costs. The reality is this: most estate documents are affordable. Just ask: “Is there a charge for the first conversation?” An attorney can recommend next steps and quote you before you commit to anything. The number is often lower than people expect.
This doesn’t mean you should go out and immediately hire an attorney. I put estate planning in the box of “Important, but not urgent.” Don’t wait 10 years. It’s not urgent until it’s the most urgent thing in the world, and by then it’s too late. You have work to do before visiting the attorney anyways: deciding who raises your kids if you're not around, who makes the medical decisions, who handles the finances, who gets what and when. These are questions that an attorney cannot answer for you.
Talk to your trusted friends and ask for a referral. Then sit down with a licensed attorney. They can provide the best advice on your unique situation.
Until next time, God Bless.
Ian
I’m not a licensed attorney – this is education and not legal advice. Seek qualified legal advice from a licensed attorney in your state.
