For the past year, a significant portion of the people contacting my office for a consultation have been asking about a trust for some reason or another. I have always received a lot of questions about trusts, but recently the share of callers asking about trusts seems to have increased significantly. The message on the internet seems to be, You need a trust, and people who read it are calling me to ask whether they need one.

When someone says to me, “I think I need a trust,” I always ask, “What are you trying to accomplish with a trust?”  This is where callers diverge. Some will say that they want a trust to avoid probate. Others want a trust to protect their assets from potential long-term care costs. Some say both. It is important that I understand the goal someone is trying to achieve with a trust because a trust is a solution to a problem, and knowing the problem is all-important.

A trust is a fiduciary relationship through which one person (the trustee) holds assets for the benefit of another person (the beneficiary). There are many different reasons why someone may need a trust. For instance, a father may wish to leave assets to his minor or disabled child. Or perhaps the child suffers from alcoholism or drug addiction. A trust can be employed in these situations to permit the trustee to hold and manage the inheritance for the benefit of the child who cannot manage the assets himself.

A trust can also be used to avoid probate or to protect assets from potential long-term care costs, but the type of trust you would use differs greatly depending on the goal. Probate in New Jersey is extremely simple.

Probate is simply proving the validity of the Will to the Surrogate, an elected official in every county whose primary role is to admit Wills to probate. Probating a Will in New Jersey takes about thirty minutes and costs about $200. Some people really want to avoid probate. For them, a trust may work, but the right type of trust for them is a revocable living trust.

A revocable trust is a trust that you can modify or revoke at any time. If you transfer your property to a revocable trust, you really have not given up any ownership of the property. You could simply revoke the trust and get the property back, so you have given up nothing with respect to the property.

Because you still own the property, a revocable living trust does nothing as far as protecting your assets from long-term care costs. To protect your assets from potential long-term care costs, you have to transfer your assets to an irrevocable trust, and the terms of the trust must clearly state that you retain no interest in the property in the trust. In other words, you cannot be a beneficiary of the trust. An irrevocable trust is a trust the terms of which you cannot modify or revoke.

So, when someone says they want a trust, the goal matters a great deal, because the terms of the trust will be very different depending on it. If the goal is to avoid probate, the first question is whether that is a worthwhile goal. If the goal is to protect assets from long-term care costs, then you have to be willing to irrevocably give up ownership of the assets. Yes, you are transferring the assets to your children, but for some people, giving up control of their assets is too big a leap.

Timing matters, too. When you apply for Medicaid to pay for long-term care, New Jersey looks back five years from the date of your application and reviews every transfer you made for less than fair market value. A transfer to an irrevocable trust is exactly that kind of transfer. If it occurred within the five-year lookback period, Medicaid would impose a penalty period during which it will not pay for your care. The length of the penalty depends on the value of what you transferred, and the penalty does not begin until you have entered a nursing home and otherwise qualify for Medicaid, which is the worst possible time.

The lesson is that an irrevocable trust works best when it is funded well before care is needed. Once five years have passed, Medicaid no longer counts the assets in the trust. A trust created after a diagnosis or a fall may be too late to help.

Before deciding that you need a trust, ask yourself what you want it to accomplish. The answer will tell you whether you need one at all and, if so, which kind.