July 2023
Financial Planning

Do I need a trust?

By Myra Alport

This is one of the most common estate planning questions we are asked at Copperwynd.  A trust is a legal document that provides for the smooth distribution of your assets during and after your lifetime.   

There are a wide range of trusts designed for specific purposes.  Comments here focus on a revocable or living trust.  Revocable trusts can be altered, amended, or terminated at any time by the trust’s grantor or trustor.    A main difference between a will and a trust is that a will only takes effect upon someone’s death.  Everyone, at minimum, needs a will to fulfill basic estate planning needs to include appointing an executor to oversee the distribution of assets according to your wishes.  

A trust becomes effective when assets are transferred to it.  Commonly held trust assets are real estate, bank and non-retirement accounts, insurance policies and personal property such as jewelry, artwork, collectibles, and other appreciable assets.   Typically, motorized vehicles are not included as trust assets*. 

Retirement accounts cannot be placed in a trust while you are living.  Placing these assets in a trust would require removing your name into the name of the trust which can cause tax nightmares.   You can name your trust as an IRA beneficiary, however there are pros and cons for doing so.   Naming a trust as a beneficiary is advantageous if your beneficiaries are minors, require special needs or if there are doubts about the financial capability of a beneficiary.    A primary disadvantage of naming a trust as beneficiary relates to the Required Minimum Distribution payouts, which are based on the life expectancy of the oldest beneficiary to all named parties.   We are happy to discuss your options based on your personal circumstances as there are IRS rules to consider. 

The many benefits of creating a trust include:

• Ensure the desired distribution of your assets to specific beneficiaries.

• Avoid probate.

• Protect your privacy.

• Make provisions in the event of a disability or incapacity.

• Appoint legal guardians to care for young children.

• Leave a charitable legacy.

• Address blended family concerns.

How can I protect my assets without the need for a trust? 

• Add primary and contingent beneficiaries to all investment accounts.

• For your personal residence, file a beneficiary deed or Transfer on Death deed with your county recorder’s office.   They may have a form or sample verbiage you can use. 

• Update checking and savings accounts with a Transfer on Death form. 

• *A beneficiary designation form from your state Motor Vehicle Dept will allow you to designate the persons you wish to inherit your car, motorcycle or mobile home.

• Make specific provisions in your will for distributing other assets as you wish.  

Life happens and circumstances can change.  Just like an annual physical it’s a good idea to review and update your estate planning documents every few years.  For example, if you have moved to another state, you’ll want to make sure your estate plan is valid under the laws there.   Is there a need to amend your appointed trustees or executors?

Last but not least ensure that your documents are in a safe but accessible place, known to your family and/or personal representatives.

Contact your advisor if you have further questions so he/she can provide the appropriate guidance related to your family situation/circumstances.  

If you have questions, please contact us.

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