Trusts come in different shapes and sizes, and some will work for you and some will not. A good estate planning attorney, or perhaps your banker or financial planner, will need to know quite a bit about your individual situation before being able to recommend a trust.
Trusts can be invaluable for asset management purposes. Suppose for example, that your 25 year old son is not good with money right now. An inheritance held in trust and managed by a family friend or a professional trustee can help him manage his funds so that he has a nest egg for his first home or a bit tucked away to help him through a layoff later in life. Or perhaps you are concerned that an adult child’s marriage is rocky, and want to see that your money goes to your children and grandchildren, not to the soon-to-be-former spouse. A correctly drafted trust can help with that.
It also is a good tool for incapacity planning. If you create a trust and put assets into it, your trustee can see that the assets are managed if you ever become incapacitated.
Assets held in trust also avoid probate. Because a trust is an entity, not an individual, when the person who funded the trust dies, the trust can continue to operate according to its terms. This can provide privacy (probate filings are public), and continuing access to trust assets by the beneficiaries or the remaining spouse.
Irrevocable trusts (ones that can’t be changed or revoked) can be used for estate tax planning, to hold life insurance policies, for Medicaid planning, or for other types of asset protection.
When you think about doing a trust, think about your goals, who would be a good trustee, and find someone who is knowledgeable about tax law and estate planning to help you with the process. Think about what assets should go into the trust, and how the beneficiaries are likely benefit (or not) by having assets held in trust. Not every situation is right for trust planning; sometimes the simple approach is the best one. Estate planning, whether trust based or will based, should be carefully tailored to reflect your situation, because each family, each inheritance, and each set of goals are a little bit different.