Hamlet’s famous soliloquy begins, “To be or not to be, that is the question.” As we approach retirement and think about what our “fourth quarter” will look like, many of us face a similar question: “To ‘trust’ or not to ‘trust’?”
Retiring well can mean many things, but one common topic that arises in estate planning is whether a trust is necessary. The answer depends on your unique situation—your marital status, family characteristics, the size of your estate, charitable intentions, and the needs of your beneficiaries.
Essential Estate Planning Documents
Before deciding on a trust, every individual should have three key documents in place:
- Advance Directive for Health Care
- Durable Power of Attorney for Finances
- Will
You should also name primary and contingent beneficiaries on all financial accounts and life insurance documents. Review these documents periodically to ensure they reflect your current wishes and comply with any changes in state law.
The Role of Trusts
A trust is a legal entity that holds and manages assets for beneficiaries. Trusts can serve many purposes—avoiding probate, maintaining privacy, protecting assets, reducing estate taxes, caring for dependents, and controlling how and when assets are distributed.
Trusts fall into two broad categories: living trusts (created during your lifetime) and testamentary trusts (created through your will after death).
Testamentary Trusts and Transfer-on-Death (TOD) Assets
A testamentary trust is established through a will and takes effect after death. When the will is probated, the trust is created, and estate assets are transferred into it.
Assets with joint ownership or TOD designations—such as life insurance policies or TOD accounts—bypass probate and do not go into the testamentary trust. Your home, personal property, and non-TOD accounts will pass through probate according to your will.
The main advantages of a will-based plan with a testamentary trust are lower upfront costs and no need to retitle assets during your lifetime.
Living Trusts
A living trust is created while you are alive and can be revocable or irrevocable. Living trusts avoid probate and preserve privacy.
Revocable Living Trusts (RLTs)
A RLT allows you to retain full control over your assets during your lifetime and make changes as needed. While RLTs don’t protect assets from creditors or reduce taxes, they can simplify estate transfer and administration when you die—especially if you own property in multiple states or expect disputes among heirs.
After establishing an RLT, you typically serve as both trustee and beneficiary. You then “fund” the trust by retitling assets (including real estate) into its name. A successor trustee manages the trust if you become incapacitated or pass away. Should we mention it becomes irrevocable at death?
Some estate plans with RLTs also include a pour-over will, which transfers any assets not already in the trust at death.
Irrevocable Living Trusts
An irrevocable trust generally cannot be changed or revoked once established. These trusts are most useful for minimizing estate taxes for large estates, ensuring disabled individuals can qualify for certain government benefits, or protecting assets from creditors.
Questions to Consider
When deciding whether to establish a trust—and which type—consider:
- Are most of your assets in tax-deferred accounts updated with TOD beneficiaries?
- What is the age of your children?
- What real estate or personal property do you own, and how should it be distributed?
- Is your estate large enough to be subject to estate taxes? (In 2026, the exemption will be $15 million per individual, $30 million for couples.)
- Do you have minor children or dependents with special needs who may require care?
- Would you like assets distributed unequally or with specific conditions?
- Do you want to transfer assets directly to grandchildren to minimize taxes?
- Are you interested in a charitable trust that provides income and supports a cause you care about?
Wrapping It Up
We hope this helps you think through your estate planning options and determine whether your existing documents are up to date.
At a minimum, everyone should have an advance directive for health care, a durable power of attorney, and a will. Whether a living trust or testamentary trust makes sense for you depends on your personal circumstances.
Please reach out if we can help you evaluate your options.
