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When Do You Need a Trust?

13 September 2023


Estate Planning – Trusts

Estate planning can be a difficult task – or many individual tasks. You want to protect your surviving spouse and your children’s future, minimize estate taxes, and maybe avoid probate court for some of your assets. We’ve discussed the need for wills and powers of attorney, but there’s another vehicle to protect your assets and your legacy for your surviving spouse and children, and potentially minimize estate taxes as well (of particular import in light of the sunset, absent Congressional action, of the current high dollar levels of estate exemption from the federal estate tax) – a trust, or multiple trusts.

Further, trusts can be a great way of avoiding probate court and the entire probate process (at least for some of your assets). They can be in the form of a revocable trust or an irrevocable trust, and come in many varieties, each of which has its appropriate uses.

But, when doing your estate planning, how do you determine whether a trust is the right vehicle for your family’s needs?

Some general guidelines:

  • If you have a high net worth;

  • If you own significant real estate;

  • If you want to keep your assets and arrangements private;

  • If you have minor children;

  • If one or more of your heirs will need long-term care; or

  • If you have multiple beneficiaries and specific goals as to the protection of each

The answer might be yes, you do need a trust, or more than one.

Why use a trust?

Wills are great, and absolutely necessary, but any will has to be validated by the probate court. Trusts, as a general rule, enable those assets within the trust to avoid the probate process and its attendant costs (the most common exception is a Testamentary Trust, which is created within the will itself).

What are your goals?

However, be aware that trusts come with their own set of costs – your estate attorney’s fees, any payments to the trustee, the fees for filing the trust’s tax returns, and income tax liability incurred by the trust, etc. It’s a very good idea to identify the specific goals of your trust before your consult your estate attorney.

Identifying those goals can also point you toward the right kind of trust for your purpose(s).

Some types of trust commonly used in estate planning are:

  • Revocable Living Trust: A revocable living trust is owned by you during your lifetime. You can manage the assets it holds just as you manage assets held in an investment account – buy and sell them, withdraw them, add to them, and change your directions for distributions to your heirs. One potential downside to a revocable trust is that, since the assets remain yours and under your own control, these assets will be available to creditors for collection of any debts. This is not necessarily a great idea in many circumstances in the State of Louisiana.

  • Irrevocable Trust: Absent a court order, generally speaking an irrevocable trust cannot be changed once it has been placed in force. The assets you designate will transfer from your own ownership to the trust’s; you cannot alter the terms. However, since they are no longer yours, any assets held in an irrevocable trust are shielded from your creditors and not included in your estate; therefore they are exempt from federal estate taxes.

  • Family Trust: This can be a revocable trust or an irrevocable trust, and is designed to protect your assets in the interests of your family members.

  • “AB” Trust: This is really two trusts, but they are usually created together. The “A” trust, which is a Marital Trust, designed to protect your surviving spouse for his or her lifetime. Your surviving spouse must be the sole beneficiary of such a trust for his or her lifetime, though s/he may, after your death, distribute some or all of the trust’s assets as s/he sees fit. The trust’s designated assets pass to your spouse tax-free, as you can pass any or all of your assets to your spouse without any incurred income tax liabilities. The “B” Trust would benefit your non-spousal heirs – and you can place assets into it shielded from income tax ramifications up to the limit of your estate exemption. The remainder of your assets can pass into the “A” trust for your spouse. This can be further complicated by allowing your spouse the use of the income of certain assets for their lifetime, which is called a usufruct.

Other types of trusts:

There are other types of trusts, which may or may not fit your family estate planning needs, such as:

  • Irrevocable Life Insurance Trust (ILIT)

  • Charitable Remainder Trust

  • Dynasty Trust

  • Testamentary Trust

Consult with your trusted financial advisor:

Whether you should set up a trust, and if so, whether your individual situation indicates a revocable trust or an irrevocable trust, or both, whether you need an A/B Trust, a Dynasty Trust, an Irrevocable Life Insurance Trust, a Family Trust, or a Charitable Remainder Trust, depends on you, your financial picture. On your goals for your estate, your surviving spouse, your estate taxes and legacy, and your family’s goals, needs, and wants. No two families are the same – and one size never fits all, especially in estate planning.

That’s why estate planning is a such deeply personal matter. We understand this. Come consult with our advisors, and let our caring experts guide you through a full estate plan, to protect your hard-earned assets for your loved ones – one which aligns with your individual situation.

Please click here to email us directly – let us know how we can help you.

Until next time –



Estate Planning Archives

Want to learn more on estate planning? Check out the below links:

The Portability Election – and Why It’s Important

The Family Meeting on Your Financial Affairs – And Why You Need to Have One

Why You Need a Financial Organizer – And What to Put in Tt

The Unlimited Spousal Deduction Explained

Wills and Powers of Attorney – Why You Need Both

Leveraging the 2023 Estate and Gift Tax Exemptions – While They Last!

Payout Rules for Beneficiaries of Inherited IRAs

The End of the Stretch IRA – and Ways to Compensate

Creating a Digital Estate Plan

Strategies for Generational Wealth Transfer

Are You Doing Enough – Or Any – Succession Planning?

2021 – Why You Should Plan for Your Estate This Year

What a Biden Presidency Might Mean for Estate Taxes, Wealth Transfers, and Inherited Assets

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