Q: My wife and I are doing some retirement planning and have an updated will and medical power of attorney. We have a few rentals, a small business, and some life insurance but the value of our estate is well below taxable values. Why would we want or need a trust?
A: First of all, we must be clear about the kind of trust involved. A living trust (or revocable living trust) is an alternative to a will to avoid probate. Because Idaho has an excellent probate law, I do not recommend a revocable living trust in most situations.
Testamentary trusts are created as part of your will. They do not come into effect until death (and in some cases, never, because they are utilized in specific circumstances, like beneficiaries being under a certain age).
Utilization of a testamentary trust for the surviving spouse is an excellent idea whether the survivor is the husband or wife. If you leave everything outright to your wife (either by will or a revocable living trust), she receives those assets without limitation. They are subject to claims by her creditors, such as business issues, a car accident, or bankruptcy. Additionally, since she owns them completely, she can give them to anyone she chooses either during lifetime or at death.
If after your death your wife remarries, there is a chance of conflict between her and your children. This can result in her leaving all or part of her estate to her new spouse or anyone else. She has no obligation to give anything to your children. If she leaves her estate to her new husband, it’s unlikely he would leave anything to your children, especially if there is conflict between them.
By utilizing a trust for your wife, the assets are available for her health, education, maintenance and support. At her death, the remainder will be distributed in the manner your will directs, presumably to your children.
Trusts are also especially valuable if any beneficiary needs protection because of problems such as inability to handle money, undue spousal influence, or alcohol or drug dependency.
Note that the trust only protects the decedent’s assets (separate property and half of the community property). However, the spouses can contractually agree that both spouses’ assets pass ultimately to their children or other descendants.