So You Want a Trust, Part 1
Posted by Stephen Williams
"Should I have a trust?" This is a common question that clients have for us.
Revocable trusts are popular substitutes for wills, intended to provide non-probate distribution of people's estates after their deaths, allowing them to retain control and use of their assets during their lifetimes. Fulp v. Gilliland, 998 N.E.2d 204, 205 (Ind. 2013).
This comment comes from the Indiana Supreme Court, and capsulizes the basic attributes of a "Living Trust". But, before we can answer our client's question, we need to dig a little deeper and narrow the topic: There are many different types of trusts, designed and tailored to accomplish varied objectives.
Property Transfers. This is the common element. The trust is a vehicle for transfer of wealth. Property may be transferred to the trust during lifetime for under the terms of a will.
Will substitute. This may be the most common form of trust (often referred to as a revocable living trust). You may create a revocable trust, serve as trustee, and retain the right to withdraw all income and principal during your lifetime. The trust document names a successor trustee (who assumes responsibility upon your death or incapacity) and specifies the manner in which the trust property will be administered and distributed following your death.
The Will Substitute is often referred to as a technique for "avoiding probate". If property is transferred by will, it is generally necessary to petition the probate court for appointment of a personal representative (executor or administrator). The personal representative is then authorized to collect the property titled in the decedent's name, pay creditors, file appropriate tax returns and eventually distribute the remaining wealth to the beneficiaries named in the will. That is the probate process.
If property has been transferred to the trust during lifetime, a probate transfer is not required. Instead, the successor trustee has authority to deal with that property and perform the functions that would otherwise be cared for by a personal representative.
Indiana has, for the past 30+ years offered the option of "unsupervised administration" of a probate estate. This is a simplified format: A single trip is made to the court house for the purpose of submitting the will and obtaining appointment of the personal representative. From that point forward, the probate court is out of the loop and the personal representative goes about the settlement and distribution of the estate in much the same manner as would a trustee - had the property instead been previously transferred to a revocable trust.
In most instances, the cost differential between unsupervised probate administration and trust settlement is modest. The trust may, however, offer beneficiaries quicker access to income and wealth. This is an advantage if it is important to provide an uninterrupted flow of cash to a spouse or other beneficiary, such as a disabled child.
Again, though, there is no stock answer to whether a client needs a trust. It is important to closely consider a client's objectives, and then see if a trust (and what kind of trust) is a good fit.