The answer depends on several factors, including your assets, your family situation, and your overall estate planning goals. While trusts can be powerful planning tools, they are not necessary for every estate plan. Understanding when a trust may be helpful—and when it may not be—can help you make informed decisions about how best to protect your family and your assets.

What Is a Trust?

A trust is a legal arrangement that allows a trustee to hold and manage property for the benefit of designated beneficiaries. The trustee can be a single person or multiple individuals serving together as co-trustees. The person who creates the trust is often called the grantor, settlor, transferor or trustmaker. In estate planning, the most commonly used trust is a revocable living trust. This type of trust is created during your lifetime and may be amended or revoked as your circumstances change. In many cases, the person who creates the trust serves as the initial trustee and maintains full control over the assets placed into the trust while they are alive and capable of managing their affairs.

Why People Create Trusts

Trusts are often used to accomplish several important estate planning objectives.

Avoiding Probate

One of the primary reasons individuals create a trust is to simplify or avoid probate. Probate is the court-supervised process used to administer a deceased person’s estate. Assets owned solely in an individual’s name generally must pass through probate before they can be distributed to heirs. When assets are properly transferred into a trust during your lifetime, those assets are typically administered by the successor trustee after death rather than through the probate court. In many situations, establishing and funding a trust during life can be more efficient and less costly for families than navigating the probate process, while also reducing delays and administrative burdens placed on loved ones.

Maintaining Privacy

Another advantage of trusts is privacy. Probate proceedings are generally public. Court filings may include the will, asset inventories, and other financial information that becomes part of the public record. Trust administration, on the other hand, typically occurs outside of the court system and therefore remains private. Unfortunately, scammers and bad actors have the ability to monitor public probate filings and use that information to target grieving families with fraudulent communications or deceptive financial solicitations.

Planning for Incapacity

A trust can also provide continuity if you become incapacitated. If the trustmaker becomes unable to manage their financial affairs, a successor trustee can step in and manage trust assets according to the instructions established in the trust document. This may help avoid the need for a court-supervised conservatorship.

Managing Assets for Beneficiaries

Trusts can also provide long-term management of assets for beneficiaries. For example, a trust may be structured to:

• Manage assets for minor children until they reach a responsible age
• Provide gradual or staged distributions over time rather than a single lump-sum inheritance
• Protect beneficiaries from irresponsible spending or financial mismanagement
• Provide for a surviving spouse through structured trust distributions, which in certain circumstances can help preserve eligibility for government benefits through carefully designed trust provisions.

This type of planning allows you to maintain greater control over how and when assets are distributed. In some situations, a beneficiary may not be prepared to manage a large inheritance due to age, financial inexperience, or other personal circumstances. A trust allows a trustee to manage the assets and make distributions over time in a structured manner that helps safeguard the inheritance while still providing for the beneficiary’s needs.

Do Living Trusts Protect Assets from Creditors?

A common misconception is that creating a revocable living trust will protect assets from creditors. Because the person who creates a revocable living trust typically maintains control over the trust assets during their lifetime, the law generally treats those assets as still belonging to that individual. As a result, assets held in a revocable living trust are generally not protected from the trustmaker’s creditors during their lifetime. After death, trust assets may also remain subject to the valid claims of creditors of the estate. For this reason, revocable living trusts are primarily used for probate avoidance, incapacity planning, privacy, and asset management for beneficiaries, rather than creditor protection.

Certain types of irrevocable trusts may offer asset protection in appropriate circumstances, but they involve different legal considerations and limitations than revocable living trusts. Examples include Medicaid Asset Protection Trusts (commonly used in long-term care planning), Tennessee Investment Services Trusts (Tennessee’s form of domestic asset protection trust for certain investment assets), Irrevocable Legacy Trusts (often used for multi-generational wealth planning), Special Needs Trusts, and Charitable Trusts, each designed to accomplish specific estate planning objectives. A common characteristic of these trusts is that the person creating the trust must typically give up a significant degree of ownership and control over the assets placed into the trust. That relinquishment of control is often what allows the trust to provide potential creditor protection or other planning benefits. Because these structures often involve strict legal requirements, timing considerations, and potential tax implications, they should be carefully evaluated and implemented with professional guidance to ensure they are appropriate for the individual’s circumstances and accomplish their intended purpose.

Funding a Trust: How Assets Are Transferred

Creating a trust document is only the first step. For the trust to function properly, assets must be transferred into the trust—a process commonly referred to as funding the trust. Funding typically involves changing the legal ownership or title of certain assets so that they are owned by the trust rather than by an individual. The method of transfer depends on the type of asset involved. For example: Real estate is typically transferred into a trust by recording a new deed with the county register of deeds. Bank accounts may be retitled in the name of the trust or transferred into a trust account. Personal property, such as furniture, valuable collections, jewelry, artwork, or other significant personal assets, may be transferred to the trust through a written assignment of personal property. Brokerage and investment accounts can often be retitled to the trust. Business interests, such as LLC membership interests or corporate shares, may be assigned to the trust depending on the governing documents of the business entity. Once transferred, these assets are owned by the trust and managed by the trustee according to the terms of the trust agreement.

What Assets Are Commonly Placed in a Trust?

Many types of property can be transferred into a trust, including:

• Real estate
• Bank accounts
• Brokerage or investment accounts
• Business ownership interests
• Valuable personal property

Transferring these types of assets into a trust allows them to pass outside of probate and be managed by a successor trustee if incapacity occurs.

Assets Often Handled Through Beneficiary Designations

Some assets are typically not transferred directly into a revocable living trust but instead pass through beneficiary designations. These assets may include:

• Retirement accounts such as IRAs and 401(k)s
• Life insurance policies
• Certain payable-on-death or transfer-on-death accounts

In these situations, the trust may sometimes be named as a beneficiary depending on the individual’s estate planning goals. For example, a trust may be designated as the beneficiary when a person wants to control how funds are distributed to minor children or provide structured management of inherited assets for beneficiaries over time. However, naming a trust as a beneficiary—particularly for retirement accounts such as IRAs or 401(k)s—can involve important tax considerations and distribution requirements under federal law. Because of these complexities, beneficiary designations involving trusts should be carefully evaluated and coordinated with the overall estate plan, often in consultation with a qualified CPA or tax professional.

When a Trust May Be Especially Helpful

A trust may be particularly beneficial if you:

• Own significant assets
• Own real estate in multiple states
• Want control during incapacity
• Have minor children
• Have a blended family
• Desire greater privacy in estate administration
• Want to avoid probate
• Want a structured plan for distributing assets to beneficiaries

In these situations, a trust can be an effective tool for accomplishing specific estate planning goals.

When a Trust May Not Be Necessary

Not every estate plan requires a trust. For individuals with relatively simple estates, a comprehensive estate plan that includes a last will and testament, durable power of attorney, advance directive for health care, and properly coordinated beneficiary designations may provide the necessary protection. Estate planning is not about choosing the most complex set of documents. Instead, it is about selecting the right tools for your particular circumstances.

Step-Up in Basis: How Inherited Assets Are Taxed

Another important consideration in estate planning is the potential tax treatment of assets at death, particularly the concept known as a “step-up in basis.” The basis of an asset generally refers to its original purchase price for tax purposes. When an asset is sold, capital gains tax may be owed on the difference between the sale price and the asset’s basis. Under current federal tax law, many assets that pass at death receive a step-up in basis, meaning the asset’s tax basis is adjusted to its fair market value at the date of death. This adjustment can significantly reduce potential capital gains taxes if the asset is later sold by beneficiaries. Importantly, transferring assets to a revocable living trust generally does not eliminate this step-up in basis. Assets held in a revocable living trust are typically treated the same as individually owned assets for income tax purposes and may receive the same step-up in basis at death. For example, if a person purchased real estate many years ago for $200,000 and the property is worth $600,000 at the time of death, the beneficiary may receive a stepped-up basis equal to the property’s fair market value at that time. If the beneficiary later sells the property for approximately that value, little or no capital gains tax may be owed. However, the tax treatment of assets can vary depending on how they are owned and how a trust is structured. Because of these considerations, estate planning decisions should be coordinated with qualified legal and tax professionals, including consultation with a CPA when appropriate.

Final Thoughts

Whether a trust is appropriate for your estate plan depends on your assets, your family dynamics, and your long-term goals. Our firm takes the time to understand your unique circumstances and concerns. We will sit down with you, listen carefully to your situation, and work with you to develop an estate plan that is thoughtfully tailored to protect you and the people who matter most.