17 Aug I Named Beneficiaries, Do I Need a Trust?

Estate planning aims to ensure that your assets are distributed exactly according you your wishes. However, achieving this goal can be complex. “Do you need a trust if you have beneficiaries?” is a common question we get. While naming beneficiaries for your accounts is a solid first step, it isn’t always enough.

If you don’t have a trust in place, your assets might not end up in the hands of those named on your accounts. Plus, there are additional benefits to having a trust that you can’t access by simply naming the beneficiaries of your accounts.

Let’s take a closer look at what it means to name the beneficiaries of your accounts, and why it’s a good idea to create a trust to handle your assets.

Trust vs. Beneficiary: Do you need a trust if you have named beneficiaries on your accounts?

Yes. It is always a good idea to have a trust to handle your assets after your death. Although naming the beneficiaries of your accounts ensures that they can avoid probate, it overrides any estate planning you may have in place already. For instance, if you name your ex-spouse directly on your bank account but state in your trust that you wish your new spouse to get the proceeds, only the ex-spouse will receive the inheritance.

Additionally, simply naming a beneficiary on your account limits your options for distributing those account funds. However, with a revocable living trust, you can either name the trust as the beneficiary of your accounts, or retitle the account so that the trust is a joint account owner. The trustee can then handle the distribution of your estate according to the guidelines set forth in the trust.

This approach allows your loved to avoid probate court, while granting you full control over the account until you pass away.

Why shouldn’t I just name a beneficiary for my accounts?

While naming a beneficiary can be a good temporary solution to avoid probate, it may not offer the comprehensive control you desire for the distribution of your assets. Simply handing all the money over to one person can leave them responsible for unexpected taxes and fees that they wouldn’t otherwise have to pay.

There are also a few special cases in which you really wouldn’t want your accounts to only have a named beneficiary. For example, if your child is the pay-on-death beneficiary of your account, then they’ll receive the entirety of the funds in your account once they turn 18. If that inheritance is hundreds of thousands or even millions of dollars, do you really want them to have control over all that money at such a young age? 

You also need to consider how leaving an inheritance by just naming a beneficiary on an account can affect your loved ones who have special needs. Leaving an inheritance outright might disqualify them from government assistance once they inherit the entirety of your account. To prevent this, you’ll want to create a “special needs” trust and have the account funds pay into that trust when you pass on. This can help ensure that the assets from your estate are passed on, while your beneficiary maintains their ability to receive government aid.

Find out how Phelps LaClair can help you set up your estate plan.

It’s always a good idea to have a detailed plan for your assets after you pass on, because your estate plan needs to work for you and your family. Working with an experienced estate planning attorney will give you greater peace of mind knowing your family’s future is secure.

Creating a trust helps you continue to provide for your loved ones after you’re gone, and minimizes your beneficiaries’ tax liability. Phelps LaClair has been serving families in the Gilbert area for over 40 years. Our top-notch estate planning attorneys can help you navigate one of life’s most complicated journeys. Call us today to find out how we can help you protect your loved ones and achieve financial peace of mind.

photo by StockSnap from Pixabay.com on 8/17/2021 | used under the creative commons license | edits made; added text over the image, “do you need a trust if you have beneficiaries”