When a trust is created, the individual creating the trust chooses a trustee to manage specific property that is placed under the control of the trustee and chooses a beneficiary to receive the benefit of the property. Depending on the type of trust and the reasons for the creation of it, an individual creating the trust may be giving up control of assets and income. In addition, once a trust is created, the trust must be administered in accordance with the trust agreement that created it. This may require additional accounting, tax returns or transfer of property. While trusts may be used to avoid the probate process, they are not necessarily cheaper than the costs of probate after the initial costs of creating and funding the trust. Trusts do not prevent family fights.
There are many reasons to create a trust. Trusts are generally created for one of the following reasons:
- Asset protection;
- Public benefit eligibility;
- Tax planning;
- Asset management for children who have special needs;
- Asset management and protection for children who have financial problems;
- Asset management when the owner loses capacity to manage financial affairs;
- Asset management for complex or large estates;
- Estate planning to avoid probate;
- Education and support of minor children; and
- Marital planning in second (or third) marriages.
Before creating a trust, talk to an attorney about your circumstances and the reasons you may need a trust. You may find that you do not need a trust and there may be simpler, less expensive ways to avoid probate, reduce attorney’s fees and reduce family conflict.