What is the purpose of a Trust?
There are numerous types of trusts. One type is a Trust for minor children. This type of trust is usually created in a person’s will and is effective only if the parents don’t survive. This type trust can delay distribution of assets to a child (without a trust they would usually get their share of the estate at 18, an age that some might say is too young.) or control distributions either in a lump sum or in several installments over several years.
What happens if there is no trust and minor children are inheriting assets?
The court will establish a thing called a Conservatorship. A Conservator will be appointed by the court. They may or may not be someone you would want involved with your children’s money, there are annual reports required to the court and the children will get the money at age 21 whether or not it is appropriate. Conservatorships can be quite costly since everything has to be done through the court.
What are some other type Trusts?
Another type of trust is an agreement between the person with the assets, the Grantor or Settlor (I will use the term Settlor) and a person to manage the assets, the Trustee, for the benefit of someone called the Beneficiary. This is most commonly called a Revocable Trust or Living Trust or Revocable Living Trust. In that type of trust it is very common for the Settlor, Trustee, and Beneficiary all to be the same person. If we stop there I am fond of saying that a Revocable Living Trust is one of the dumbest things I have ever heard off. We end up exactly where we started BUT things don’t remain the same way forever. While the Settlor of the trust will never change, the Trustee will change when the Settlor can no longer handle the management of the trust assets. Also, the Beneficiary will change upon the death of the Settlor. If a person has a trust it will become the principal estate planning vehicle instead of the will.
Which do you prefer, a will or a trust?
It really depends on the situation of the client. If the client owns real estate outside Colorado or if there is the probability of a long-term disability then I will usually recommend a trust. If neither of these things apply I will typically recommend a will,
Why?
Trusts cost more to set up and fund. Because of Colorado’s Probate law, I don’t think that most people get enough value out of a trust to justify the extra cost. If anyone has attended one of these “free dinner” estate planning presentation they will be presented with all the reasons that a trust is superior. I don’t disagree that in some areas trusts are superior, but again, unless a person has a real need for a trust I can’t recommend that they spend the extra money to get one.