“Should I have a trust?”  I get this question a lot from clients.  There is no one answer to this question; just as there is no one trust.  In order to understand if you should have a trust, you have to understand what a trust is.

A trust is a fiduciary relationship through which one person—called the trustee—holds assets for another person—called the beneficiary.  A grantor is a person who funds a trust with his assets.  The grantor gives assets to the trustee, so the trustee can hold and invest those assets for the benefit of the beneficiary.

If you were to imagine a trust, you would probably imagine a lengthy legal document.  That legal document you are imagining is actually the trust agreement.  The trust agreement contains the terms of the trust, but a trust does not exist until a grantor gives assets to the trustee to hold and invest for the benefit of the beneficiary.

Once the trustee is in possession of the assets of the trust, he holds and invests those assets pursuant to the terms of the trust agreement.  The trust agreement guides the trustee as to what he should do with the assets of the trust.

The terms of the trust are often quite general.  The terms might say, “distribute the assets of the trust at your discretion to the beneficiary for the beneficiary’s health, maintenance, support, and education.”  The trustee then makes judgment calls as to whether a distribution fits into one of those four categories of distribution—health, support, maintenance, or education.

The terms of the trust may leave distributions solely in the discretion of the trustee.  The terms might say, “The trustee may distribute the principal of the trust to the beneficiary in the trustee’s sole and absolute discretion.”  With a standard such as this, the trustee would make discretionary distributions to the beneficiary, essentially doling out the money as the grantor may have doled his own money out to the beneficiary.

What the terms of the trust say are up to the grantor.  As long as the terms are not against public policy, a grantor can make the terms of the trust anything he wants those terms to be.

There are revocable and irrevocable trusts.  A revocable trust is a trust the terms of which the grantor can modify or revoke.  An irrevocable trust is a trust the terms of which the grantor cannot modify or revoke.  Unless a trust says it is irrevocable, the trust is revocable.

There are testamentary and living trusts.  A testamentary trust is a trust the terms of which are contained in a last will and testament.  The grantor would be the person who died and funded the trust with assets of his estate.  The terms of the trust are words in the Will.  A living trust is a trust that a person creates and funds while he is alive.

So, do I need a trust?  It depends.  In my opinion, most people do not benefit from a revocable living trust unless they own real estate in another state.  A revocable living trust—if funded with the out of state realty—can help avoid the need to probate a Will in another state.  For instance, assume Mr. Smith owns a condo in Florida worth $400,000.  If Mr. Smith dies without a Will but is a resident of New Jersey, his Will must be probated in New Jersey and Florida.  Probate in New Jersey is very simple and very inexpensive.  Probate in Florida is quite complicated and costs roughly 3% of the value of the asset in Florida.  In Mr. Smith’s case, Florida probate would cost $12,000.

Do you need a trust in your Will?  That depends. Is a beneficiary under your Will a minor, such as a young grandchild.  Does a beneficiary suffer from a disability and receive public assistance that must be preserved and would be displaced if he came into money?  Does a beneficiary suffer from addiction?  Is a beneficiary a spendthrift?  All of these issues could benefit from a testamentary trust.

Whether you need a trust very much depends upon your and your beneficiaries’ circumstances.  A trust is not a one-size-fits-all solution.