I thought I would address a question, I get from many clients. And that is whether to create a living trust or not. There are a number of factors for determining if someone should set-up a living trust for their assets. And no one factor weighs more heavily than another and most factors work in conjunction in a sliding scale. Over the next couple of posts, I’ll provide factors when a living trust makes sense and then provide guidelines for when it might be better to not create a living trust.
The reason for the growth of living trusts has been simple probate avoidance. Probate is an expensive and time consuming process that can be mitigated by setting up a trust. A trust would remove a person’s assets from their estate and quickly transfer assets to a beneficiary. Otherwise, probate could drag on for years and might require heavy court involvement. The other main reason for the growth of living trusts is that it is much easier for a trustee to control the assets of an incapacitated person in a living trust than it is when those assets are in the incapacitated person’s control and there is only a weak power of attorney.
Many of the factors to elect to transfer assets into a living trust compliment each other. For example, one reason is that there is an older settlor and another reason is the settlor is in poor health. Old age and poor health, regrettably, go hand-in-hand when thinking about whether a living trust makes sense. Sometimes I see clients that are young in poor health, sometime I see elderly clients in great health, and, unfortunately, many times I see clients that are older and in poor health but they all need to consider a living trust.
The question becomes what would be considered poor health or old age to consider a living trust. The answers are somewhat surprising. A person over the age of 50 needs to think about establishing a living trust and over 60 considering a living trust should be an automatic. While 50 does not seem that old, it is the age when diagnosis of many long term illness start to appear. If there is a family history of major illness, like some type of cancer or heart disease, the need for a trust further increases. If a person has the “right” medical history, I would even recommend a living trust be created immediately for someone under the age of 40.
For someone in poor health the analysis is much easier. If someone is diagnosed with a life threatening or life ending disease, a living trust makes sense because a trustee can manage a settlor’s assets and prepare the estate for a quick transfer on the settlor’s death. Other health factors for analysis are a family with high incidence of cancer, previous diagnosis of cancer or other debilitating illness or simply evidence of a body starting to breakdown from some type of physical or mental stress or trauma. In these situations, a living trust should be an immediate estate planning need.
Next post, I delve into additional reasons to create a living trust.