​5 reasons you need a trust, not a will

If you haven't considered using a revocable trust rather than a will as your main estate planning document, you could be making a critical mistake.

Here are five reasons for using a revocable trust as the primary method for disposing your estate:

Pass on assets privately, quickly and efficiently: Using a revocable trust to distribute your estate provides a degree of privacy because the trust won't be filed with the probate court and therefore won't become a public document (unlike a will). Further, property transferred into a revocable trust during your lifetime won't be subject to the expense and delays of probate. And if you become incapacitated, the trustee of your revocable trust can manage the assets without the need for a court-appointed guardian.

Preserve assets for heirs and charities: You can make changes to your revocable trust at any time. But when you die, it becomes irrevocable, and the provisions that pertain to the disposition of assets to your heirs and charities will be administered by your trustee under the terms of the trust.

Your trust can include language to allow the trustee to make special elections to minimize or eliminate any applicable estate tax (federal or state). The trust can also include language that allows the trustee to protect assets from creditors of, or a legal judgement against, a trust beneficiary. A will cannot do this.

Assets that remain in your trust after your death (when the trust becomes irrevocable) are generally not considered marital property. That means those assets aren't subject to division in a divorce settlement if the beneficiary gets divorced. However, in many states, a divorce court may take the beneficiary's income interest into consideration when making decisions about the division of marital property or marital support obligations.

Retain control over distributions: Your trust can include language that stipulates when distributions of income and principal will be available to beneficiaries, such as children, grandchildren or others. Your trust can include distributions for specific purposes such as for education or health care expenses. You can also include language for distributions based on attaining specific ages, such as one-third of the principal is distributed at age 30, half at 35 and the remainder at 40.

Distribute retirement accounts efficiently: When your trust is the beneficiary of your retirement accounts (IRAs, retirement plans, etc.) and it includes the proper language, the trustee can limit withdrawals to the retirement account's minimum required distributions based on the life expectancy of the oldest beneficiary. This prevents a beneficiary from making the mistake of liquidating a retirement account and triggering a large income tax obligation.

Keep assets in the family: When a surviving spouse remarries, or in the case of second marriages, the concern arises that a new spouse's children could inherit assets and reduce what children of the first marriage might get. In this case, a special trust provision (called a Qualified Terminable Interest Property trust, or QTIP) can be used to provide income to the second spouse while he/she is alive. After his/her death, the assets are distributed to the children of the first marriage.

Finally, if you use a revocable trust, you should re-title your financial accounts and property currently held in your name into the name of your revocable trust. Also, as you acquire new property and open new accounts, you should title them in the name of your revocable trusts.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.