In the comments on my last post, several readers asked thoughtful questions about family trusts, second marriages, and protecting assets in the event of cognitive decline. A few readers even asked if I would write a post specifically about trusts and estate planning. So here it is.
Over the years, I’ve heard various comments and questions come up, such as:
“Is a trust really necessary?”
“I have a durable power of attorney; isn’t that good enough?”
“My situation is simple. It’s all going to the kids, and I have a will.”
Estate planning can feel complicated, but the core issues usually come down to a few practical questions:
When does a trust actually make sense?
Why might a durable power of attorney fall short?
What common mistakes cause problems for families later?
Today, we’ll walk through each of these.
Do you really need a Trust? Today, you’ll find out. Share on X
Let’s address each of the core issues in turn, starting with a basic overview:
Pros and Cons of a Trust
I’ve had a revocable living trust in place since 2018. At the time I set it up, I was single with no kids. So why did I feel I needed one?
Before answering that, it helps to understand what a revocable living trust (RLT) actually does.
An RLT simply means you create a legal entity that holds your assets while you are alive. You typically serve as the grantor, trustee, and beneficiary. And a revocable trust means you can change its terms at any time.
You still control everything exactly as you did before. The key difference is that you name a successor trustee who can step in if you become incapacitated or after you pass away.
There are no special tax benefits or creditor protections simply from setting up a revocable living trust this way. So why do people do it?
Five practical reasons usually come up:
Privacy
Avoiding probate
Control over how assets are distributed after death
Creditor protection for beneficiaries
Easier management if you become incapacitated
Probate is the court process used to settle an estate. It requires public disclosure of assets and can involve legal costs and delays depending on the state.
Assets titled in a trust generally avoid that process.
That said, many assets already bypass probate. Accounts with named beneficiaries—such as retirement accounts, life insurance policies, annuities, and transfer-on-death accounts—avoid probate and pass directly to the beneficiary.
So again, why bother with a trust at all?
In my experience, the answer usually comes down to three things: control, protection, and planning for incapacity.
Control and Creditor Protection
Trusts are often used when people want more control over how assets are distributed after death. Trust structures can also provide creditor protection for beneficiaries in certain circumstances—typically once the trust becomes irrevocable after your passing.
For example,
protecting assets for kids in second marriages, or from ramifications of a spouse who remarries after you pass
preventing your child’s inheritance from being lost in divorce
putting limits in place on the use of funds for a child who struggles with spending or addiction
protecting assets for beneficiaries in high-liability professions such as surgeons or entrepreneurs
One practical example: romance fraud is increasingly common among older adults. If you pass away first, how do you ensure assets meant for your children don’t end up redirected to a new partner?
Most people trust their spouse completely, and that trust is usually well-placed. But cognitive decline later in life can make even well-meaning people vulnerable to scams. A trust can serve as a safeguard, providing income to a surviving spouse while protecting the principal for the next generation.
The downside is cost and complexity. Corporate trustees can be expensive, and naming a family member as a trustee for other beneficiaries can sometimes create tension.
Naming your surviving spouse as successor trustee is most common, but in cases of romance scams or cognitive decline, there is the potential that they could misuse or squander trust assets.
While control and creditor protection are critical in some situations, for most households, I find the biggest practical benefit of a trust comes from something else entirely.
Ease of Management Later in Life
Over the years, I’ve worked with several older clients who began showing signs of cognitive decline. A few have since passed, and I remember each situation clearly.
In two cases, clients moved into long-term care facilities with the help of an adult child. Because the trust named that child as successor trustee, we were able to add them as co-trustee with the agreement of the attorney and the client.
This allowed us to continue handling everything seamlessly. Bills were paid, required minimum distributions were processed, taxes were withheld, and the family could give us direction through the co-trustee.
It made a difficult time much easier for everyone involved.
At this point, you may be thinking:
“Isn’t that what a durable power of attorney is for?”
Why a Durable Power of Attorney is Not Enough
Many people assume a durable power of attorney solves this problem.
In theory, it should. In practice, it often doesn’t.
Financial institutions frequently refuse to accept outside power-of-attorney documents, particularly if they were created years earlier. The reason is usually that the document doesn’t contain enough detail.
Banks and brokerage firms often require specific language authorizing actions such as:
changing an address
initiating withdrawals
sending money to third parties
changing beneficiaries
transferring funds
If those powers are not clearly spelled out, the institution may refuse to honor the document.
As a result, many financial institutions require their own internal power-of-attorney forms. In practice, this means you need to complete separate forms for each bank or brokerage account. If the person needing help is incapacitated or unable to sign, this becomes a serious problem.
I’ve seen adult children show up with perfectly valid legal documents and still be unable to access a parent’s accounts.
When assets are titled in a trust, the transition is typically much smoother. The successor trustee already has authority to act, which avoids the scramble of gathering and approving documents across multiple institutions.
For more on this topic and other critical info on inheriting assets and planning your estate, watch or listen to the podcast episode “How Inheritances Really Fit into a Retirement Plan.”
Why Did I Feel I Needed a Trust?
So why did I personally decide to create a trust?
I owned a business with a buy-sell agreement in place. I also owned a home and brokerage accounts. If I died, I wanted one person named as successor trustee to consolidate everything and distribute assets to my four siblings.
But the bigger reason was incapacity planning.
I wanted someone who could step in quickly if I ever became unable to manage things myself. That was the scenario that mattered most to me.
Of course, creating the trust is only half the job. You also have to fund it.
I transferred my home to the trust using a quitclaim deed. My brokerage account was retitled to the trust, allowing assets to transfer in-kind without tax consequences. My business shares were assigned to the trust through additional legal documentation.
Retirement accounts are handled differently. They cannot be owned by a trust, though a trust can be named as a beneficiary. In my case, I chose to name family members directly as beneficiaries instead.
Other Estate Stuff You Need to Know
Every time you open a financial account, title property, or name a beneficiary, you are engaging in estate planning.
And small details matter.
For example, if you open a joint account with a child, the assets legally belong to that child when you pass away—even if you intended them to be divided among several children.
In one case, a client maintained about 10 different bank savings accounts, each earmarked for a different purpose. He occasionally opened new ones in his own name without retitling them in the trust. When he died suddenly, those accounts had to go through probate, creating complications in an otherwise well-structured estate plan.
In another situation, a woman with pancreatic cancer worked with an attorney to establish a trust. Unfortunately, she never updated the beneficiary designation on her 401(k). She intended for the assets to be divided between her husband and her two children from a previous marriage. Instead, the entire account was passed to the husband. He ultimately shared the funds with the children as she intended, but doing so required him to take a full distribution and created unnecessary tax consequences.
Second-marriage situations often require careful planning. Sometimes, part of an IRA or Roth account is intentionally directed to children from a prior marriage. Other times, a trust structure allows a surviving spouse to receive income while preserving principal for children.
A good estate planning attorney can help you sort through those options.
Wrapping Up
In short, I did my estate planning—and have amended my trust twice since then—because the idea of something unexpected happening without a plan bothered me.
I could just imagine the headline:
“Prominent financial planner didn’t do her own planning.”
Now, I’m not well-known enough for that headline to matter, but you get the point. I didn’t want to be a hypocrite.
And the truth is, once it was done, I felt far more peace of mind than I expected. Not quite a sparkle bomb. More like the smell of a Downey dryer sheet fresh out of the dryer.
What About You?
Most people I talk to fall into one of three groups:
Everything is done and reviewed regularly
Some documents exist, but they probably need updating
It’s still sitting on the to-do list
If you’ve completed your estate planning, how did you feel once it was finished?
And if it’s still on the to-do list, what’s been the biggest obstacle—time, complexity, or just not knowing where to start? Let’s chat in the comments.
