Do I Need A Trust?

Perhaps the most asked question in our office is, do I need a trust as part of my Colorado estate plan?  The answer depends.

There is no Colorado litmus test for who does or doesn’t need a trust.  There are certain factors that influence the decision.  Some clients specifically request an estate planning trust because they just administered a parent’s trust and saw how smoothly it worked.  Other clients specifically request a trust because they just administered a parent’s probate estate and things were in disarray – and they don’t want to leave the same “mess” for their children.

A person with real estate in multiple states would probably benefit from a trust because it avoids multiple probate proceedings.  Those ancillary probate proceedings can be expensive.  People with mineral interests will probably benefit from a trust for similar reasons.  It can be very expensive to transfer those mineral interests through probate.

A person diagnosed with a chronic disease or mental health issue would probably benefit from a trust because it provides a mechanism for another to manage their assets during life.  Married couples with prenuptial agreements often use separate trusts to identify separate property and keep that property separate.  When a client is concerned about meddling by a former spouse or family members, a trust can add a layer of protection from litigation and provide additional privacy.

While wealthy people often use trusts, wealth is not a prerequisite to benefit from a trust.  Most sophisticated tax and asset protection planning is done through a trust.  However, sophisticated tax and asset protection planning can be accomplished through a will.   Further, high net worth individuals do not always avoid probate and other expenses with a trust because certain assets cannot be transferred out of their individual name.  The trust is still beneficial for management and privacy.

People of modest or little wealth often benefit the most from a trust because a larger percentage of their wealth can be consumed in the probate and transfer process.  The trust provides a quick, quiet way to transfer a house, investment accounts, and other assets without the time and expense of probate.