“Do I need a trust?” I hear this question all the time from clients. There is no easy answer because the reason a person may need a trust varies.
There are three roles involved with any trust—the grantor, the trustee, and the beneficiary. The grantor is the person who places his assets in the trust. The grantor is the person who goes to an attorney to have the trust instrument drafted.

The trustee is the person who holds and invests the assets of the trust. The trustee is obligated to invest the trust assets in a manner that is prudent. The trustee makes distributions from the trust in accordance with the terms of the trust instrument.

The beneficiary is the person for whom the terms of the trust benefit. The trustee is investing the assets of the trust for the benefit of the beneficiary and making distributions from the trust to the trust beneficiary.

The trust instrument is what most people think of as the trust. The trust instrument is the legal document that spells out the terms of the trust. The trust instrument identifies who the grantor is, who the trustee is, and who the beneficiary is.

The same person may be the grantor, the initial trustee, and the initial beneficiary of the trust; however, the same person cannot be the sole trustee and the sole beneficiary of the trust. This is because a trust is not the trust instrument (the terms of the trust) but the relationship of the trustee to the beneficiary. A trust is a fiduciary relationship through which the trustee holds and invests the assets of the trust for the benefit of the beneficiaries. If the same person were the sole trustee and the sole beneficiary, then there would be no fiduciary relationship—a person cannot hold assets for himself as a fiduciary.

A trust might look like this: John Smith goes to his attorney to have a trust instrument drafted. The trust instrument appoints Mr. Smith as the initial trustee of the trust. The trust instrument also names Mr. Smith as the primary beneficiary of the trust. When Mr. Smith dies, the remaining assets of the trust pass to Mr. Smith’s four children, to be divided equally between the children. Mr. Smith’s daughter, Mary Jones, is the successor trustee; Mary serves as trustee if and when Mr. Smith is no longer able to serve (perhaps because of his death or disability).

This would be a valid trust because although Mr. Smith is the grantor, the initial trustee, and the primary beneficiary of the trust, someone other than Mr. Smith is also named as a trustee (Mary Jones) and someone other than Mr. Smith is named as the beneficiary of the trust (Mr. Smith’s four children).

The terms of the trust may say that Mr. Smith can use any or all of the assets of the trust during his life for his benefit at his sole discretion. When he dies, the assets of the trust are divided equally between his four children.

This is what a trust is, but do you need one? Mr. Smith may need to create a trust if one of his children are disabled or a minor or if one of the children has a problem with drugs or alcohol. Mr. Smith may benefit from a trust if he is trying to give away his assets in order to potentially qualify for Medicaid benefits someday, but he wants to give his assets away in a manner through which the assets would be protected if one of his children got divorced or died before him or were sued.

Often, clients will ask me if they need a living trust. When a client says this to me what they typically are talking about is a revocable living trust. Revocable means the terms of the trust can be modified or completely revoked any time Mr. Smith chooses to modify or revoke the terms of the trust. Attorneys often call revocable living trusts Will-substitutes because a revocable living trust is a substitute for a last will and testament.

The only benefit of a revocable living trust over a Will is the ability to avoid the need to probate your Will in another state if you own real estate in the other state. For instance, if you own a condo in Florida, I could use a revocable living trust to avoid the need for your children to probate your Will in Florida. If you do not own real estate in another state, then you probably would not benefit from a revocable living trust. A last will is sufficient.