Why You Don’t Need A Trust

I’m going to assume that many of you who are reading this post have a trust of some sort. I’ll also go out on a limb and say that for those of you with trusts, a couple of you may actually need one. The rest of you…may have been sold.

I once attended a conference where a well-known speaker was addressing a large group of financial advisors like myself. He said something that puzzles me to this day. He said there are two things that everyone in the room needed. In addition, every client of every person in the room needed these two things as well. First was a power of attorney. Okay, I can probably get behind that. The second was, you guessed it. A trust.

According to Fidelity.com, “A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries.”

There are many types of trusts and many situations when a trust is necessary and beneficial. The focus of this blog is living trusts. In my experience I find that clients buy trusts for two reasons. The first, to avoid probate and the second, to keep the transfer of assets private. If these are your objectives, I would encourage you to investigate some alternatives. There may be more cost-effective ways of accomplishing these goals. Some easy things would include establishing a will and using TOD (transfer on death) and/or POD (payable on death) designations on financial accounts. Some states allow for deeds to be titled with beneficiaries as well.

In my experience, most living trusts that are being created are unnecessary, and they are being sold under a lot of false assumptions. Living trusts are expensive as is the administration of said trusts. They do not protect assets from creditors or Medicaid spend downs. They are not necessary to avoid probate and they are not usually a tax effective way of transferring assets.

If you’ve bought a trust, you may have thrown your money away. In addition, you may be complicating your estate situation with something that was sold under the guise of making things easier. Like anyone in a fiduciary position, attorneys should be looking out for their clients’ best interest and not their own. Some are just trying to get a look at all of your assets. Some firms use trusts as a tool to sell you an annuity or another financial product that you don’t need (in addition to the trust). Many are simply hoping to charge a fee to “administer” the distribution of your assets. When establishing a trust, you need to be on the lookout for salesmen. Exhaust other options first. There’s usually an easier and a cheaper way.