17 Aug Do You Need a Trust if You Have Beneficiaries?

Do you need a trust if you have beneficiaries? This is one of the most common questions in estate planning today. While naming beneficiaries on your accounts is an important first step, it doesn’t always guarantee that your assets will be distributed according to your wishes. Without a trust, your assets may still face probate or unintended outcomes that leave loved ones unprotected. Understanding how trusts and beneficiary designations work together can help you build a secure, thoughtful estate plan that truly honors your intentions.

Do You Need a Trust if You Have Named Beneficiaries?

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 Beneficiaries Alone May Not Be Enough

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.

Benefits of Combining Trusts and Beneficiaries

Using both trusts and named beneficiaries in your estate plan gives you the best of both worlds. While naming beneficiaries helps certain accounts pass outside of probate, combining this strategy with a trust adds another layer of protection and flexibility. A trust allows you to control exactly how and when your assets are distributed, while still avoiding probate for many of your accounts.

For example, by naming your trust as the beneficiary of a life insurance policy or retirement account, you can ensure those funds are managed responsibly on behalf of your loved ones, rather than simply handed over in a lump sum. This is especially important if your beneficiaries are minors, have special needs, or might struggle with managing a large inheritance.

Combining trusts and beneficiary designations can also help reduce tax consequences, protect assets from creditors, and safeguard eligibility for government benefits. Overall, this strategy ensures your estate plan works exactly the way you intend, giving you peace of mind that your wishes will be honored and your family will be protected.

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

If you’ve ever wondered do you need a trust if you have beneficiaries, the answer is often yes. Combining a trust with beneficiary designations can help protect your loved ones, avoid probate, and ensure your estate is managed exactly according to your wishes. At Phelps LaClair, our experienced Arizona estate planning attorneys can help you create a plan that fits your unique needs and goals. Contact us today to schedule a free consultation and gain the peace of mind that comes from knowing your family’s future is secure.

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