Do You Need a Family Trust?

Attorneys suggest the document as a way to protect family’s assets

By Deborah Jeanne Sergeant

How is a family trust different from a will? Should you include a family trust, also known as a living trust, in your final planning?

That depends.

A family trust can help the estate avoid probate court when the grantor (the person who has the trust written) dies. With a simple will, any unlisted assets can end up in probate court — an outcome most people want to avoid. According to experts, probate courts can take a long time to decide how to settle the non-designated parts of the estate. The process can cost up to 10 percent of the value of the assets involved and is all public.

Unlike wills, family trusts are extremely difficult to contest, so the grantor can rest assured that his or her wishes will be carried out.

A family trust can also reduce the estate’s tax liability and make transferring property easier, according to experts interviewed for this story. The grantor can change the terms of the family trust whenever he wishes.

Most of the advantages of a living trust benefit those inheriting the estate; however, they can also help the grantor. Since the trust legally owns the estate — not the grantor or the beneficiary — the trust protects the grantor’s assets should he be admitted to long-term care. Otherwise, Medicare would not cover these long-term care expenses.

People don’t have to be wealthy to have a trust written.

“I’ve had clients with very modest estates who want to set up a trust and avoid probate and maintain privacy over their estate,” said Patrick D. Lydon, attorney and owner of Sutter, Summers & Lydon, P.C. in Webster.

It may seem like the extra expense for forming and maintaining a trust wastes more money from the estate than it’s worth; however, Lydon said that the costs of a trust are “substantially less” than a will that is administered through probate.

Lydon advises people to make an informed decision based on their own circumstances and desires. Lydon and other estate planning attorneys offer regular workshops to help people better understand their options.

“Don’t try this at home alone,” Lydon said. “Get someone with expertise.”

Richard Kroll, attorney and founder of Kroll Law Firm, LLP in Rochester, also said that getting professional legal advice is important and that “using a trust is one method to get our clients ready for government benefits eligibility,” he said.

Simply signing over assets to a relative may seem an easier way to accomplish this goal than a trust; however, Medicare reviews the owner’s finances for the past five years and each instance of giving a gift worth $11,237 (the Rochester rate. It varies by location) bars him or her from one month of Medicare coverage for long-term care.

“What if that child has a judgment, bankruptcy, divorce or they themselves need public assistance or the child spends the money or, heaven forbid, the child dies?” Kroll said. “The money cannot be recovered.”

Trusts are immune to all of those asset-sapping circumstances.

Kroll said that trusts offer clients many advantages but they’re not perfect for every circumstance — and they’re not the only way to achieve common financial goals. Other financial planning vehicles can save clients on taxes and protect their estate from probate. Someone who’s already incapacitated may not be able to form a trust unless their legal guardian or designated person with power of attorney has an enhancement that permits them to make those decisions.

“Consider the advantages and disadvantages and get competent advice from an experienced practitioner,” Kroll said. “Get input from the family. One of the family members would be the trustee. You’re giving up control over your assets that the family will let you recover your assets if you need to and that the family will honor your wishes and they’ll understand why you’re undertaking this and won’t develop jealousy later on.

“That’s why we call it a ‘family trust.’”