What If I Told You Everything You Have Heard About Trusts Is A Lie?
Many people think that in order to have a solid estate plan where they can avoid probate and protect themselves from creditors, they have to have a trust. They have been told by their parents, friends, family, and sometimes by attorneys that having a trust is the only way to go to ensure their family and their things are protected.
With somewhat recent changes in the laws here in Colorado and across the United States, trusts do not play as important of a role in most people’s estate plans anymore. If you want to know more about what a will is or what a trust is, you can read more by clicking that link. I’m going to focus more on when you need a trust here.
So When Do I Actually Need A Trust?
There are three main times I recommend a trust for people:
- If you have what I like to call a “Brady Bunch” family, then a trust can help to determine who is supposed to get what a little more effectively than a will can. This occurs when each spouse is bringing children to their current relationship from prior marriages. If you wish to split things to certain children upon the death of the first spouse, or guarantee certain children will get more/less than others at the second death, then a trust is beneficial.
- If you have tons of money. By tons of money, I mean over the federal estate tax exemption amount of $5,490,000.00 for 2017. If you are married, you can double that number. If you have over that amount you will pay estate taxes in Colorado. Trusts can help to plan for this occurrence and lower your estate-tax bill.
- You have complex family situations. More specifically, you wish to protect your children from themselves. If you have a child with a drug addiction, alcohol problem, gambling addiction or any other type of situation where you would like to ensure money is protected and can’t be used for those addictions, a trust can help you to accomplish that goal.
Just because you fall under one of these three categories, does not necessarily mean you have to go out and get a trust right away. A will-based plan still may be able to meet all of your needs and protect you.
Many people also come to me and ask, “What about Medicaid planning? Doesn’t a trust help protect your assets from Medicaid?” Well, yes and no. The long and short is that Medicaid laws change so frequently that it is nearly impossible to draft a plan and guarantee that it will work against all Medicaid laws forever. Feel free to read more about the pros and cons of Medicaid trusts here.
The important thing is to have a skilled estate planning lawyer review your situation to help you decide what may work best for your specific situation.