1. Avoid the expense and delay of probate.

Probate can be avoided in almost every situation by establishing a living trust and working with your attorney to choose the most appropriate ways to hold title to assets, to choose appropriate beneficiaries, and to appropriately use POD (payable on death) or TOD (transfer on death) designations. (In some unusual cases, such as wrongful death lawsuits, probate is necessary and sometimes even desirable.) 

 

2. Make sure the right people receive your assets.

Assume you’ve made a will leaving all your assets to your son, John. After your death John is divorced or dies, and his wife, Allison winds up with much or all of your funds. Allison later remarries and starts a new family. Allison’s children from her marriage to John — your grandchildren — could end up receiving little or none of the inheritance you left their father and which you assumed would be used for their benefit. 

To ensure that your grandchildren benefit from your estate, consider keeping the assets in a living trust rather than having them distributed at your death. You could name John your successor trustee, drawing income (and possibly a portion of the principal) during his lifetime. At his death (or when he reaches a designated age) the trust would end and the funds would be distributed to his children. Allison would never gain control of the inheritance unless that’s what you wanted. (Although we’ve been discussing grandchildren, you can also use this type of trust to protect other heirs.) 

 

3. Protect the inheritance you leave.

Assume you want to leave some money to your grandchildren. A guardian or custodian will typically retain control of the funds until the children reach the age of 21, at which time they must receive the inheritance. What if 

one of them decided to blow it all on a fancy sports car or goof off for a year or two? No one could intervene — the money would be the grandchild’s to spend however he/she wished. 

Or suppose you have an adult child who hasn’t yet learned (and may never learn) how to handle the money. How could you prevent that child from squandering the inheritance? 

A living trust can be designed to take care of these situations. For example, you could stipulate that your grandchildren not receive their inheritances until they reached age 25, 30, even 40 or older! You could direct your successor trustee to give them the income from the assets (or perhaps even a portion of the principal) in the meantime, but they would not receive the bulk of the estate until they were older and (hopefully) wiser. Even then, you could arrange to transfer the principal over a specific period of — five-year intervals, for example — so they wouldn’t have the chance to blow it all in one shot. 

 

4. Provide for a special needs loved one or a person with a special situation.

Suppose you are caring for a handicapped child or other family member or friend who is unable to work or otherwise handle his or her own affairs. What will happen to that person when you die? 

Instead of having your assets transferred at your death, you could leave them in trust with instructions that the income, principal, or both be used for that individual’s benefit. A successor trustee also named in the trust document (perhaps a relative, friend, or trusted professional) would continue to manage the funds. After the handicapped person died, the assets would be distributed to your remaining beneficiaries. 

But what if the person is receiving public benefits (Supplemental Security Income, Medicaid, etc.) that could be cut off if trust assets were available? Assets in a Special Needs Trust are used to supplement, not replace, public benefits. With this type of trust you can continue to provide crucial support for your handicapped loved one while maximizing the amount that will remain available for other heirs. 

This is also a way to provide for a spouse who is currently qualified for Medicaid. If the non-Medicaid spouse were to die before the Medicaid spouse, a Special Needs Trust would be set up to provide for the Medicaid spouse without them losing their benefits. 

As we mentioned earlier, most people name themselves initial trustees of their living trusts in order to retain complete control of their assets until their death. After their death their successor trustee steps in to fulfill the trust’s requirements. But if you’re tired of keeping track of your affairs, you could appoint a trustee to manage the trust for you during your lifetime. 

 

5. Protect yourself and loved ones if you become incapacitated by illness or accident. 

What would happen to your finances if you were to become incapacitated and you don’t have a family member as a co-owner or signer on your financial accounts? A conventional will takes effect only when you die. 

Let’s say you get into an accident and are hospitalized for an extended period of time. Who can legally step in and pay your bills, make sure your car and house payments are made? 

No one, unless someone goes to court to establish guardianship over you, which can be expensive. If you have a trust, your successor trustee could step in to handle your finances and health care needs until you are back on your feet.