The Manassas Law Group, PC
9255 Lee Avenue
Manassas, VA 20110
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My friends say I need a Trust
Many clients come in for a consult about estate planning and say they have heard that a Trust is necessary. We advise that a trust may, or may not be necessary, depending on a number of factors including the clients’ goals, family structure, including ages of children and grandchildren and how their assets are currently titled or owned.
For example, let’s assume a husband and wife have two adult children with little likelihood of grandchildren. The couple owns their home jointly with survivorship (by virtue of language in the deed) and each has a 401k retirement account where the other is named survivor (by virtue of beneficiary designations they have completed). They have a checking account, two automobiles, and furniture.
Upon the passing of the first spouse, the survivor will own the house by virtue of the language in the deed and will inherit the deceased spouse’s 401k by virtue of the beneficiary designation. If the vehicles and checking account and furniture total less than $50,000 these assets can be passed to the surviving spouse using Small Estate Affidavits and no probate is necessary. If the vehicles, checking account and furniture exceed $50,000, then the surviving spouse can qualify for an abbreviated probate process (no accountings required) by qualifying on the estate as Executor (assuming the deceased spouse named him/her Executor in the Will and named him/her primary beneficiary of the estate). If there is no Will, the surviving spouse can qualify as Administrator and will be the primary heir assuming the 2 adult children are the children of the couple. The abbreviated probate would still be available
However, what if one of the adult children has had difficulty managing his or her finances? The use of a Trust to hold assets that would otherwise pass directly to the adult child could protect those assets as the adult child would not have direct control of the assets. Those assets would be managed by a trusted person named as Trustee of the Trust. A Trustee named in the Trust created with the estate planning documents would not be required to file reports with the Court system.
Imagine the two adult children in our example have children (grandchildren of husband and wife) who are minors or young adults. Assume further that the husband and wife have 401ks which total in excess of $500,000. The couple could name each other as primary beneficiary of his/ her 401k and name the two adult children as contingent beneficiaries. As long as neither of the adult children has creditor problems and as long as both survive the husband and wife there is no problem.
However, if one adult child predeceases the surviving spouse (husband or wife) and the spouse then passes, the share of the 401k would pass to the children of the deceased adult child (husband and wife’s grandchildren). It is likely the deceased grandparent would want the funds in the 401k to be used to best advantage and not withdraw prematurely. However, if the grandchild was 18, he or she could decide to withdraw the 401k funds to go on vacations and buy lots of stuff. A trust could be designed to receive retirement funds or other assets due to a child or young adult who had not attained a certain age (30 for example). In any event, the husband and wife could decide how those assets would be handled for the benefit of the younger family members. The trustee named in the Trust would not be required to report to the Court system
There are many variations of the above example that one might imagine. A competent professional can assist you in determining which of the various estate planning tools are appropriate to your situation and goals.