Estate Planning: Do I Need a Trust or a Will?

In the Clint Eastwood movie “Gran Torino” there is a scene familiar to moviegoers in which the family of the deceased is sitting in the office of an attorney listening to the “reading of the will”. As you would expect from Hollywood (and from surly old cancer ridden, octogenarian Clint Eastwood) there are surprises in the will. It turns out he has bequeathed his beloved 1973 Ford Gran Torino to his neighbor – much to the dismay of his spoiled granddaughter.

Well in the movie we know that Clint had his wits about him when he wrote that will and when he passed (giving his life for the lives of his new friends next door), and we have a pretty good idea why he gave the car to his friend - and not to his granddaughter! But in real life it is not always so easy to discern whether a person of advanced age has his or her wits about him when that person rewrites a will, changes a beneficiary designation, adds a joint owner on an asset, or transfers property. He may have been tricked, or may have diminished judgment from age related mental decline. He may not understand how what he is doing affects his children. He may have a shiny new "friend" with ulterior motives.

What can the children do when Dad – who had a steel trap mind when younger - starts lapsing mentally, and may not even know or accept it's happening? How can they be sure the assets, including perhaps a treasured family home or vacation property, ultimately pass to children and grandchildren as Mom and Dad always said they should?

Here’s where a trust comes in. Property owned outside of a trust can be transferred with just the signature of the owner, and ultimately passes according to the owner's will after death. A will can be changed at any time. Property owned by a trust, on the other hand, can only be transferred by the signature of the trustees, and passes - without probate - according to the terms of the trust after the owner dies. If Clint had put the Gran Torino in a trust and appointed a trusted family member as co-trustee to serve with himself, and attempted to change his trust, the co-trustee would have to sign off on the change of the trust's terms. If Clint had diminished capacity and/or was being unduly influenced, his co-trustee would have a chance to assess the situation, ask questions and, if needed react. Undue influence usually happens when elders are left alone with undue influencers, who try to keep other people away. Having a co-trustee who must sign off on the things the influencer wants his target to do can save the day.

My example is not the greatest one because we normally don't put registered cars (not even 1973 Gran Torino's) in trust. But if you substitute a family home, investment account, life savings account, insurance death benefit or retirement plan, the stakes are higher. The point is the trust puts a protective wrapper around the trust owned assets. It can shelter assets from an older person's lawsuit creditors, from scammers, from new friends with ulterior motives, or a new spouse if there is remarriage without a prenuptial agreement. In the case of a trust for a child, the trust can protect the child's inheritance against a failed marriage or lawsuit judgment, and can keep the trust assets from passing outside of the parent's family bloodline. Trusts can also be used to reduce transfer taxes, such as estate and the generation skipping transfer taxes, and to avoid probate.

Back to the question: Do I need a trust or a will? The answer depends on what degree of risk there is that property could be lost to the family; and what measures you feel are appropriate to alleviate those risks. This is a personal decision to discuss with your advisers.