Idaho Estate Planning the Top 4 Reasons People use a Trust for Estate Planning

By Lane V. Erickson, Idaho Estate Planning Attorney

When most people think of estate planning, they usually only think of a written last will and testament. While this is an important part of an estate plan it is not the only document that should be included. To have at least a basic estate plan, a person should have not only a written Will, but they should also have a durable power of attorney, a power of attorney for health care, and a living will.

These additional documents protect you while you are alive, if you can no longer take care of yourself, your own property or make decisions about your own finances. Additionally, these documents provide a plan for your health care including giving you the ability to leave end-of-life directions of what you do and don’t want if you are in the hospital on life-support.

We’ve found that most people don’t get their estate planning. Because they don’t know how to start. Our goal is to make this process as easy as possible. To help each of our individual clients we provide a free Estate Planning Questionnaire to help individuals create a customized plan. We also provide a free 30-minute consultation to answer our client’s questions and make sure they understand all the options that exist for their own circumstances.

Everyone should have at least a basic estate plan prepared for themselves. In addition to these documents, some people also add a trust or multiple trusts as part of their estate plan. Some of my clients believe that they should have a trust because they have family members or friends who have trusts. Others have heard that having a trust makes things simpler and easier when it comes to estate planning. The purpose of this article is to discuss the top four reasons that people use a trust as part of their estate plan.

The first reason that people like to use a trust as part of their estate plan is to avoid probate if possible. In Idaho, a probate is required anytime a person passes away when they own any type or kind of real estate. In other words, if their name is on the deed or title to a home or farm ground or even bare ground, then a probate usually needs to be done in order for that interest to be transferred to someone else. Additionally, a probate is required in Idaho anytime a person’s estate has a value of $100,000 or more.

In order to avoid probate, many people create a trust and transfer their real estate and enough of their other assets into the trust so that when they pass away, a probate is no longer required under Idaho law. In other words, they would transfer the deed or title to their home or other real estate into the trust. They also transfer enough of their other estate assets into the trust so that personally they own less than $100,000 worth of assets. By doing this, the trust becomes the owner of the real estate and other assets instead of the individual themselves.

Then, when the person passes away, the trust controls the distribution of these assets to whoever the person creating the trust wants them to go to. In other words, the trust itself names beneficiaries who will receive the trust assets. Additionally, the trust provides specific instructions on when these distributions are made following the person’s death.

In many states, avoiding probate is a great idea. The reason for this is that probate is very expensive. In fact, in some states, both the court system and or the attorneys representing the clients or their families charge a percentage of the estate as the cost of doing a probate. Because of this, if the value of the estate is large, the cost of doing the probate could also be very large.

The good news is that in Idaho, this is not the case. Rather, in Idaho the cost of doing a probate, as of the writing of this article, which is the year 2020, is inexpensive. This includes all the filing fees, publishing costs, notice fees, certified mailing costs, transfers of real estate by deeds, and the attorney fee. In other words, if you have to do a probate in Idaho, it’s really not that bad or that expensive.

Another reason people like to use a trust is so that they can do some tax planning. In particular, many wealthy people want to avoid paying an estate tax to the federal or state governments. In order to do this, they have to reduce the value of the assets they actually own when they die. They accomplish this by transferring valuable assets into one or more trusts, so they are no longer part of the individual’s estate.

Again, currently, most people don’t have to worry about this as an issue. However, if you are wealthy, and you are an individual then your estate must be worth more than $11.4 million before you have to worry about estate taxes. Likewise, as a couple, your estate value would have to be twice this amount before an estate tax would apply. However, we are in an election year. Once the election is over, these laws could change and the nontaxable limits of an estate could be lowered.

One of the most common reasons that a person would set up a trust is when they intend to give a portion of their estate to someone who is a minor. In Idaho, this would be a person who is under the age of 18.

Most parents, grandparents and other family members don’t want their money, property and other assets to go to someone who is young. They are concerned that if a young person were to receive these types of things that it could cause problems for them during the rest of their lives. In other words, if you leave a large inheritance to a child who is 18 years old, it may cause the person problems because they won’t have the maturity to handle the money or property.

To avoid this, many parents and other family members will create a trust that is funded upon their death if the individual they are giving a portion of their estate to is under a certain age. This is called a testamentary trust that is only created when needed. When this type of trust is funded, the trust then maintains the money, property, and other assets and uses them for the benefit of the person without giving it directly to them. Then, based on the instructions left in the trust, those assets would be distributed directly to that individual when they reach a certain age.

For example, I have parents who often create testamentary trusts for their young children. They will instruct that the trust will use the assets to help their children get an education, perhaps help them purchase a first house, or maybe help them in establishing a business. However, the assets are not given directly to that child until they reach certain ages such as one third of the assets at the age of 25, another third at 30, and the remainder at 35. Keep in mind that this is just an example. The ages and the amounts that are distributed could be whatever you choose them to be.

The same thought process that is used for minors is also used for individuals who have a disability. These individuals may not be capable of handling money or assets as an inheritance. Likewise, if an individual is suffering from an addiction, leaving money or other assets to them as an inheritance make hurt them more than help them.

Additionally, many individuals who are disabled are receiving program benefits through federal or state programs designed to assist someone who needs this kind of help. If that individual were to receive a large inheritance, they would likely lose their disability benefits. Then when the assets run out, that individual would have to reapply to become eligible to receive those benefits again.

In these instances, a trust could be set up that could supplement the benefits these people are receiving, or make sure that whatever disabilities, addictions, or other problems they suffer from will not be furthered through the inheritance that is left to them. In other words, it gives their family members the ability to help them in the best way possible.

If you have questions about using a trust as part of your estate plan, please contact us for a free 30-minute consultation where we can answer your questions. We have helped numerous clients create trusts for a variety of reasons to help their family members and loved ones. We are confident that we can answer your questions and help you too!

Our team of Idaho lawyers can help you with any of your estate planning or probate needs. Whether you are seeking to create or review an estate plan for yourself or would like to help a loved one, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a free consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho estate planning problems.