Who Needs a Trust Instead of a Will and Why It Matters
Explore how trusts offer tailored solutions for complex estates, ensuring control, privacy, and efficiency beyond what a will can provide.
Deciding how to pass on your assets involves choosing the right tool for your circumstances. While wills are common, trusts offer distinct advantages in specific situations, affecting the efficiency, privacy, and control of your estate plan. A trust may be a better choice than a will for individuals with particular financial or family needs.
Multiple Properties in Different Jurisdictions
Owning real estate in more than one state or country complicates estate settlement. Using a will to transfer these properties typically requires separate court proceedings in each location. The main probate process occurs where the deceased person lived permanently. However, a court in one jurisdiction usually cannot oversee real property in another.
This necessitates ancillary probate, a secondary court process, in each additional jurisdiction where real estate is owned.1Nolo. Ancillary Probate: How to Avoid Probate in Another State Real estate follows the laws of its location, not the owner’s residence. The executor must initiate these separate proceedings, submitting documents like the will and death certificate and following local probate laws. Multiple probate processes increase costs, cause delays, and consume estate resources due to additional court fees and potentially hiring local attorneys.
A revocable living trust can manage property across jurisdictions while generally avoiding ancillary probate. When real estate is transferred into a trust during the owner’s lifetime, the trust, not the individual, becomes the legal owner. Since the trust holds title, these assets usually bypass the individual’s probate estate. The successor trustee distributes trust assets, including real estate, privately according to the trust document, avoiding court supervision in each property’s location. This approach often results in a more streamlined, private, and less costly transfer of property.
Special Conditions for Dependent Beneficiaries
For beneficiaries who rely on financial support, a trust provides structured, long-term management that a simple will often cannot. Outright distributions from a will may not suit minors, individuals with disabilities, or those who might struggle with managing large sums. A trust allows the creator (grantor) to appoint a trustee to manage assets and make distributions according to specific instructions, ensuring funds are used for the beneficiary’s benefit over time.
The trustee has a fiduciary duty—a legal obligation to act solely in the beneficiaries’ best interests, manage assets prudently, and follow the trust’s terms. For minor beneficiaries, the trust can hold assets until they reach a specified age. The trustee can use funds for the minor’s maintenance, education, and health needs, safeguarding the principal until the beneficiary is mature enough to handle the inheritance. The trust can detail distribution guidelines, potentially staggering payments at different ages or milestones.
Trusts are particularly useful when planning for beneficiaries with disabilities who depend on government aid like Supplemental Security Income (SSI) and Medicaid. These programs have strict asset limits (generally $2,000 for an individual for SSI as of 2024/2025). An inheritance received directly through a will could disqualify a beneficiary from essential benefits.
A Special Needs Trust (SNT), authorized under federal law (42 U.S.C. Section 1396p(d)(4)), addresses this.2New Jersey Department of Human Services. Special Needs Trusts Assets in an SNT are held for the benefit of a person with disabilities without counting towards eligibility limits for means-tested programs. Managed by a trustee, SNT funds supplement, not replace, government benefits, covering expenses like specialized therapies, education, travel, and personal care attendants that enhance quality of life but aren’t covered by public aid.
Different types of SNTs exist.3Special Needs Alliance. Overview on the Two Different Types of Special Needs Trusts A “first-party” SNT is funded with the beneficiary’s own assets (like a settlement) and usually requires establishment before age 65. These often have a “payback” provision, reimbursing the state for Medicaid costs from remaining funds upon the beneficiary’s death. A “third-party” SNT is funded by someone else, like parents, through their estate plan. These do not require Medicaid payback, allowing remaining assets to pass to other beneficiaries.
Trusts can also include “spendthrift” provisions, which generally prevent beneficiaries from assigning their interest in the trust and shield assets from their creditors. While creditors usually cannot seize trust assets before distribution, this feature adds protection for beneficiaries vulnerable to financial exploitation or poor spending habits, helping ensure the inheritance provides lasting support.
Privacy Preservation for Estate Plans
When a person dies leaving a will, the document is typically filed with a court during probate, the process of validating the will and overseeing estate settlement. A key result is that the will and related probate documents, such as asset inventories, become public records.4Investopedia. Wills: How They Go From Probate to Public Record
Once filed, these documents are accessible to anyone at the courthouse or sometimes online. Public information can include asset details, values, beneficiary identities, and distribution plans. For those valuing financial confidentiality, the public nature of probate is a significant drawback.
A trust, especially a revocable living trust created during life, offers greater privacy. Assets held in a trust generally avoid probate.5Minnesota Attorney General. Living Trusts – Probate and Planning Because the trust owns the assets, the successor trustee manages and distributes them according to the private trust document, without needing to file the agreement with a court.
The trust’s details—assets, values, beneficiaries, and distribution plans—remain confidential. Administration occurs privately, handled by the trustee based on the grantor’s instructions. While trust documents might become public if litigation occurs, this is less common. Avoiding public probate is a distinct advantage for those seeking privacy in their estate settlement.
Ongoing Oversight for Complex Assets
Certain assets require continuous, informed management rather than simple distribution after death. Examples include large investment portfolios, specialized collections like art, intellectual property generating royalties, or mineral rights. These assets often cannot be easily divided or sold without diminishing their value or disrupting income. Effective handling demands ongoing oversight and expertise.
When complex assets pass through a will, the executor primarily focuses on settling the estate—paying debts, filing taxes, and distributing property relatively quickly. The executor’s role typically ends when the estate closes, a structure ill-suited for assets needing long-term stewardship. This might force a premature sale or distribution that harms the asset’s value or beneficiaries’ long-term interests.
A trust provides a framework for uninterrupted management. Transferring complex assets into a trust allows the owner to appoint a trustee responsible for managing the property according to detailed instructions. This ensures continuous oversight tailored to the assets’ needs. The trustee legally manages the assets, making decisions about retention, investment, or sale based on the trust’s goals and beneficiaries’ interests, potentially over many years.
The trustee operates under strict fiduciary duties, requiring loyalty, prudence, and impartiality for the beneficiaries’ benefit. This includes managing trust property responsibly. Many jurisdictions follow principles like those in the Uniform Prudent Investor Act (UPIA), guiding investment decisions.6Uniform Law Commission. Uniform Prudent Investor Act Summary The UPIA generally requires trustees to use modern portfolio theory, considering the trust’s overall strategy, risk tolerance, and distribution needs. Trustees must exercise reasonable care and skill, typically diversifying investments. This legal standard ensures informed decisions about complex assets, adapting strategies as conditions change, long after the original owner is gone.
Involvement with Business Entities
For owners of partnerships, LLCs, or closely-held corporations, transferring ownership after death poses challenges a will might not fully address. A business interest passed through a will typically goes through probate. This court-supervised process can cause significant delays, potentially lasting months or years, creating uncertainty for the business’s leadership and stability. Probate proceedings are also public, potentially exposing sensitive business information.
Probate can complicate business continuity. An executor under a will might lack the specific knowledge or authority to effectively manage the business interest during probate. Court approval might be needed for major decisions, slowing operations. If the estate lacks liquid funds for debts or taxes, the executor might be forced to sell the business interest, possibly against the owner’s wishes or at a poor time.
Using a trust, particularly a revocable living trust funded during the owner’s lifetime, helps bypass many probate issues for business interests. When ownership stakes are transferred to the trust, the trust becomes the legal owner. Upon the owner’s death, these assets typically avoid the probate estate. The successor trustee, appointed in the trust document, manages or distributes the business interest according to the trust’s instructions, without court intervention or public disclosure. This facilitates a smoother, private, and often faster transition.
A trust enables detailed business succession planning. The document can specify the owner’s wishes for the business, designate recipients of the ownership, set terms for buyouts (often coordinated with buy-sell agreements), or instruct the trustee on managing the interest for heirs. This planning ensures operational continuity. The successor trustee can act promptly upon the owner’s death or incapacity, managing the ownership interest without the operational freeze common during probate, thus protecting the business’s value and stability. The trustee’s fiduciary duty legally requires prudent management of the business interest solely for the beneficiaries’ benefit as directed by the trust creator.
