The Four Main Reasons People Use Trusts in Their Estate Planning

By Lane V. Erickson, Idaho Estate Planning Attorney

The landscape of estate planning has changed quite a bit in the last decade or so. Primarily, the use of trusts by a large number of people has gone by the wayside due to the changes in tax and related estate planning laws. However, there are still important and good reasons that using a trust as part of your estate plan could be a good idea. At the Racine Law Office, we have been assisting clients in creating their customized Idaho estate plans, including the use of trusts for more than 70 years.

The issue of whether using a trust as part of an estate planning tool is still a good idea has come up more recently with several clients who have come to me to review their estate plans that they created a decade or more before. One of the main reasons that an individual should check their estate plan to make sure that it still works well for them is the passage of a long period of time. Life is not static. Changes are happening in our lives and in the lives of our family and loved ones all the time. What a decade or more goes by, the circumstances that existed when you created your estate plan may no longer exist. In their place, there may be new issues or concerns that have come up and now need to be dealt with.

The Racine Law Office team of Idaho estate planning attorneys are here to help you. Our team consists of partners Randy Budge and Lane Erickson and attorneys Nate Palmer and Dave Bagley each of whom have the knowledge and experience you may need to help you with all of your estate planning and probate issues, including determining whether using a trust as part of your estate planning would be a good idea. Below are the 4 main reasons that people still use trusts today as part of their estate planning. If you find that any of these apply to you, we encourage you to contact us for a consultation so that we can answer your questions and discuss how using a trust in your estate plan might benefit you and your family.

We find that the number one reason that most people are motivated to use a trust today is to avoid the costs of probate. This issue usually comes up when I talk with clients who have not lived in Idaho their entire lives. The reason for this is that in many other states, the costs of a probate are a percentage of the value of the estate itself. In many states the beginning costs of a probate include a 6% fee of the entire value of the estate for the first $100,000 up to a $1 million. If an estate is larger than that then there is a pro-rated percentage that is charged for the amounts above the first million dollars.

It's easy to see why individuals who come from states which charge these kind of probate fees would be concerned about the costs of probate. For example, if your estate was worth $500,000, the cost of probate would be $30,000. That's a pretty large chunk of money. However, in Idaho you don't need to worry about these kinds of costs or fees. We find that the typical cost for a probate in Idaho regardless of whether your estate is worth $100,000 or $1 million, is usually in the range of about $2,200 to about $2,500. This is assuming that there are no disputes with creditors or between family members and that everything in the probate goes smoothly.

Even if the costs of probate aren't an issue for you there is still a good reason for using a trust to avoid probate in certain circumstances. The most common circumstance when using a trust as part of your Idaho estate plan is a good idea is if you own land or homes or other property in Idaho and in other States at the same time. In this instance, if you die without a trust, then a regular probate must be completed in the state of Idaho where you reside. Additionally, to deal with the land or home that you have in a different state, an ancillary probate will need to be completed. Again, the costs of doing an ancillary probate usually doesn't rise to the level of charging a percentage of your estate, but it still could increase the expenses rather quickly. If you own the land located in other states in a trust, then an ancillary probate is no longer necessary.

The second main reason that we find that individuals are interested in having a trust as part of their Idaho estate plan is so that they might be able to qualify for Medicaid help if they need it. To be sure, using trusts either within a Medicaid program, or to qualify for Medicaid in the first place, can be complex and rather difficult. The laws concerning Medicaid eligibility are constantly changing. As a result, what used to be an easier circumstance in creating a simple trust in order to qualify for Medicaid is no longer the case. Now, the type of trust that must be used to qualify for Medicaid in Idaho is pretty onerous and difficult to establish. As a result, rather than using a trust to qualify for Medicaid, we usually recommended our clients do long-term care planning as part of their estate plan and consider purchasing long-term care insurance, annuities or other options that may exist that might help them during their later years.

Using a trust to avoid the infamous "death tax" has been a bit of a moving target over the last couple of decades. The reason for this is that the exclusion amount of an estate has been constantly growing and as a result the death tax has affected fewer and fewer people over the years. To illustrate, here is a table that will show you how the exclusion amount has grown over the last 18 years.

From this table you can see that it wasn't but just a few years ago that even smaller estates would be impacted by the death tax. Because of this, trusts were a useful tool in lowering the value of an estate below the exclusion amount so that the death tax would not be applicable. However, with the changes as they exist now, each individual can exclude up to $11.18 million dollars (and couples can exclude double this amount) before the death tax is applicable to their estate. As a result of the ever-growing exclusion amount, trusts are not necessarily used much anymore in an effort to avoid the death tax, unless you happen to be blessed with an extremely large and valuable estate.

This doesn't mean that there aren't any good reasons for using a trust as part of your estate planning. In addition to avoiding probate when needed, a trust is still very helpful as a way of allowing you provide for a family member or loved one when the need exists. If you have children who are young, or if you have a child who has a disability or a handicap regardless of their age, or if you have a child or other loved one who have addictions or other problems, it may not be a good idea for you to leave a large sum of money or property to this individual when you die. Rather, a trust might be the most useful way that you can use your money or property to provide for these individuals without giving the money directly to them.

As an example, for young children a trust could be used as part of a last will and testament to protect and use, money, property, and assets from your estate to help your child. A trust could be used to support your child in gaining an education without giving the money directly to them. Then, your trust could state that when your child reaches a certain age, where you believe they are capable of taking care of the money or property themselves, it could be given directly to them.

Likewise, if you have a child who has disabilities or a handicap and they will never be capable of taking care of their own property or finances, you can use a trust to help them as well. The trust you set up for them could be more permanent and could be designed to provide for their needs directly or as a supplement to any benefits they would receive throughout the remainder of their life.

Additionally, if you have a child who has addictions or other problems, you may not want to give money directly to them because that can make their problems worse. However, you can use a trust to provide for some of their basic needs based on the discretion in the trust and of the trustee.

If you believe that using a trust as part of your estate plan would be a good idea based on the circumstances listed above, we can help. We would be happy to provide you with a consultation to discuss using a trust as part of your estate planning.

Our experienced Estate Planning team of attorneys can help you and your family with your Idaho estate plan or with your probate needs. Whether you are seeking your own customized Estate Plan or are in need of a Probate for a loved one who has passed, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation with the Racine Olson team. You can also email us directly at racine@racinelaw.net. We will answer your questions and will help you solve your Idaho Estate Planning and Probate problems.