Skip to main content
No. of Recommendations: 11
Isn't a trust just another way of avoiding probate?

Yes. And it's usually a whole lot cleaner that trying to use a series of TOD accounts and named beneficiaries to avoid probate.

A trust for all (or the bulk) of your assets can make administering your estate very easy. It puts your successor Trustee in charge. You can instruct them to pay all of your final expenses and any outstanding bills. You can instruct them to pay any estate taxes. A trust can avoid probate, but it doesn't bypass estate taxes, although it can take advantage of tax laws to minimize estate taxes.

Most importantly, you can leave a simple portion of your estate to various people without having to specify the exact assets. With TOD accounts, the named beneficiary gets that account whether its 5% of the estate or 95%. You can fix this by leaving each beneficiary the same fraction of each individual account. But then what if you decide to change that fraction down the road? Maybe you decide to make a large gift during your lifetime to one beneficiary, then reduce their fraction of the remaining estate? Then you'd have to go to each account and change their portion. And you'd have to file a new deed on any real estate.

With a trust, you can simply amend the trust - one change and it's done.

If you have a single heir and an estate small enough to avoid estate taxes, TOD accounts are fine. But many people reading this site will have multiple heirs and could even have enough money to make estate taxes an issue. For them, a trust will almost always be easier to administer - both before and after your passing - than TOD accounts and/or named beneficiaries.

Of course, IRA and 401Ks have significant income tax advantages to passing them along as named beneficiaries rather than naming your trust as a beneficiary. So you do need to keep that in mind when planning your estate.

There are horror stories about trusts, too. So they are not a cure-all. They are just a tool in the arsenal to be used when appropriate.

One of the most important things I can recommend about a trust is to actually read the entire trust before finalizing it. You need to understand everything there. If you don't understand something, that's a sign that something may be poorly written. Don't just sign a "fill in the blank" trust off the internet, nor one you're paying good money to a lawyer to write. Here's an inside tidbit on lawyers - they usually use a fill-in-the-blank trust. Or at least start there before doing a bit of tweaking. Especially if they only do trusts as a part of their practice, they may not have actually read the trust, either. So protect yourself and read the trust.

--Peter
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.