You might believe that if one living trust is a good thing, then multiple trusts must be even better. To be clear, yes, you may have one, two, or more living trusts. As with all estate planning questions, though, whether or not multiple trusts make sense for you depends on your circumstances.
Generally, it is important to understand what different types of trusts can do for you when deciding whether you need one or more trusts in your estate.
What follows are a few important questions to explore related to trusts.
1. Who are your intended beneficiaries?
For most people, estate planning is the primary method for them to provide for their loved ones and organizations important to them after their death. A living trust can be a great way to transfer property easily and quickly to loved ones and avoid probate. But consider your unique circumstances.
- If your beneficiaries include only your immediate family—and those members come from direct and not blended familial lines—one living trust may suffice for you to achieve your estate planning goals.
- If your familial situation is less than straightforward—for instance, if you were married more than once, have children with more than one person, or you and your current spouse each have children from prior relationships—you may consider multiple trusts that work together to ensure the inheritance plan you desire. Blended families may find that having a combination of marital trusts as well as individual trusts make the most sense.
- If you would like to make sure someone with disabilities or special needs is set up for their lifetime, a special needs trust may be advisable. With this arrangement, a person can receive income from the trust without the amount affecting their eligibility for public assistance disability benefits provided by the government.
You may also choose to ensure that a beloved pet is taken care of with a pet trust, through which you can leave money to take care of an animal.
If you would like your favorite charity to benefit from your estate, you may draw up a charitable trust, which can also benefit you and your beneficiaries through a tax break.
2. Do you own a home?
If you own a home and would like your beneficiary to use and enjoy your home for their lifetime and then have the property pass to someone else upon their death, you might consider a personal residence trust.
A personal residence trust provides a legal way for the person you are currently sharing your home with to remain there even if their name is not on the deed but also allow you to pass the property to someone else when that person dies.
This type of trust may be useful in the case of a second marriage in which only one spouse owns the marital home. In this situation, the trust could permit the surviving spouse to remain in the home during the rest of their lifetime, but then the homeowner's children could receive the property upon the spouse's death.
3. Do you have federal and state estate tax or other tax concerns?
While most estates fall under the threshold amount for estate taxes, if they are a concern, you may be able to better plan for them through the use of various trust instruments. Several types of marital trusts, including A-B trusts, can help manage estate tax obligations by shifting or delaying tax burdens until the death of the second spouse.
Wealthy estates may also be interested in generation-skipping trusts. These specially designed trusts avoid taxation in the generation between the decedent and their grandchildren. A generation-skipping transfer tax, however, may apply, so it is imperative to receive sound advice regarding these types of trusts.
The above are just some considerations when deciding on the kind of trust or trusts that would work for your estate. Because estate planning decisions can have far-reaching effects for both you and your loved ones, you should consult with an experienced estate planner who can assist you in choosing the right framework for you.