DO I NEED A TRUST?
By: Sandra L. Clapp
Sandra L. Clapp & Associates, P.A.
Estate planning attorneys are frequently asked if a “trust” is required as part of an individual’s planning process. There is a lot of information available through the internet, magazines, and other public personalities regarding the “horrors of probate” and the need for a trust. Often this recommendation is based upon laws of states where probate can be time consuming and costly. A revocable trust can be a helpful planning tool, but often is not needed for an Idaho resident.
In its most basic form, a trust is an agreement between the creator of the trust (often referred to as the settler or grantor), the trustee of the trust (the person charged with fiduciary duties to administer the trust assets), and the beneficiaries of the trust (the persons who are entitled to receive benefits from the trust). A trust can be revocable (subject to modification or termination) or irrevocable (generally no ability to change the terms). When a “trust” is discussed for estate planning purposes the reference is often to a revocable trust where the individual establishing the trust is also the trustee and beneficiary. The trust may become irrevocable upon death of the person who established the trust. Irrevocable trusts have specific tax and legal implications that are outside the scope of this article.
For income tax purposes, a revocable trust is generally identified as a “grantor trust” and does not require any special taxpayer identification numbers or income tax filings. For any asset titled in the name of the revocable trust, the grantor’s individual Social Security Number is used for any income tax reporting purposes. All tax implications of the revocable trust are reflected on the grantor’s individual income tax return filings.
To “avoid probate” it is critical that all assets be properly titled in the name of the revocable trust. A schedule attached to a trust simply describing the assets to be held in the trust is often not effective if the asset has a separate title process (such as real property, bank accounts, stocks, and automobiles). Once a trust is established, the grantor must continuously make sure all assets are titled in or are coordinated with the trust for the trust to “avoid probate.” It is not uncommon for a revocable trust to be established, but at the time of the grantor’s death it is discovered there are assets still held in the individual’s name that will require a probate anyway.
The Idaho probate process is generally straightforward and often does not require court involvement except at the time of the initial appointment of the personal representative (the executor or administrator of the estate). The estate administration in Idaho is generally unsupervised by the court. For this reason, one primary difference between a trust and a probate is the mechanism for authority to be granted to the fiduciary – in the trust the authority is granted through the trust agreement and in the will (or probate) the authority is granted by the court. Once the authority is granted, the duties of a trustee and a personal representative are often the same (inventory and liquidate assets, pay debts and expenses, make distributions as directed).
A revocable trust is most appropriate for an Idaho resident in the following situations: (a) the individual owns a real property interest in another state (that will be subject to ancillary probate upon death); (b) the individual may acquire out of state real property or may move from Idaho (the trust is more portable between states); (c) the desire for confidentiality in the terms of distribution; or (d) a diagnosed illness that will likely cause deteriorating health and ability to manage assets. Because a revocable trust will require ongoing maintenance, in Idaho a will is often the preferred planning tool.
This article is not intended to replace legal or tax advice applicable to your situation and should be used only for informational purposes.