Do I Need a Trust If I’m Not Wealthy?

"Do I need a trust if I'm not wealthy?" is one of the most common questions we get asked followed by "what is the difference between a living trust and an irrevocable trust?" Trusts are not only for the wealthy, but for generations we have been taught that they are something that middle class families don't need or can't afford. This gate-keeping has created a robust industry for many companies; however, it is not accurate. In fact, everyone who owns property or wants to control how money is distributed, or just make their children's lives easier should have a trust.

Let's start with defining the terms:

A Living Trust/ Revocable Trust: A legal entity that holds and distributes assets outside of the court process, often used to simplify or avoid court proceedings. This allows you more control. You will have someone in charge of the trust that can allocate your money and assets when and how you want. You will likely avoid probate, can protect some wealth from taxes, and control when your beneficiaries will receive money like at certain ages, after college, for a house, etc. It can be changed or dissolved, but needs to be properly written and executed to be active.

Benefits of a Living Trust or Revocable Trust:
1. An on going entity with someone else managing it after you pass away
2. It is private
3. It avoids most probate or court proceedings
4. Allows you control over how and when your home, money, etc. is distributed. You can even make it specific to your child buying a home or opening a business or turning 40 or to be used to care for a pet.
5. In married couples it can be used to save some money on estate taxes.

A will is what most people have been told they need. There are many laws on what makes a will a legal document like having it notarized and having 2 witnesses sign it; however, that varies from state to state and if you created your own, you need to check with an attorney to ensure that it will be recognized in probate. Let's go over what a will actually is:

Will: A legal document that outlines your wishes for distribution of your assets and guardianship of minors after your death. When you pass away this document distributes everything at one time and still requires your family to go through probate (the court process where a judge divides your assets). It can be changed at anytime, but needs to be properly executed to be recognized in court.

1. Usually a one time division of assets
2. The public record will include what assets you have
3. It still requires court proceedings which take 6 to 12 months
4. Initially, less expensive than a trust
5. Less control over distribution of home, money, etc.
6. Does not avoid any estate taxes

As you can see, there are some major differences between how a trust and a will operate and what you need depends entirely on your situation. Here are some questions to ask yourself:

Do you own real estate?
Do you want your family to avoid probate?
Do you have children or dependents?
Do you want privacy?
Do you want to leave assets in stages or protect them from creditors?
If you answered yes to 2 or more, you may benefit from a revocable living trust in addition to a will.

Lastly, there are very few situations in which we would recommend an irrevocable trust. This is a trust that cannot be changed. Once it exists, you cannot distribute assets from it like you would a living trust. If a home is in it, the home could be sold, but the money would go into the trust and could be used to purchase another asset that would also be in the name of the trust. We do not usually recommend these types of trusts because they are very rigid and can be challenging for your family to work with later. If you are in need of this type of trust for Medicaid planning, generational wealth, etc. feel free to give us a call and we can make suggestions on who you can talk to for your particular situation.

Reach out anytime. We offer free consultations and are licensed in Oregon, Washington, California, Nevada, Nebraska, and Florida. Schedule a free consultation here or call 503-908-5457 or email Chad@AffordableEstatePNW.com