People—and most attorneys—think trusts are all about probate avoidance. Sure, a living trust allows the grantor (the person who makes the trust) to avoid probate. That may or may not be a big deal, depending on the jurisdiction. Certainly, if the grantor owns real estate in multiple jurisdictions, a trust is the way for them to go to avoid multiple ancillary probates.
Whether a will or a trust is used as the primary estate planning vehicle, thought should be given as to how the assets should be left to beneficiaries. Stephen C. Hartnett offers that a trust is like a tube of toothpaste. The tube can provide many protections which are not available once the toothpaste is squeezed out of the tube.
Trusts can be drafted to eliminate or minimize estate tax. If an asset is owned by a specialized estate tax trust, versus by the grantor outright, the asset can be excluded from the beneficiary's taxable estate. This savings can be great for a beneficiary receiving an inheritance—more to loved ones and less to the government, as well as for the beneficiary who would have a taxable estate once inherited assets are included. In some instances the beneficiary may be the trustee of such a trust as long as an "ascertainable standard" is utilized, such as health, education, maintenance, and support.
Trusts can keep inherited assets free of claims from the beneficiary's creditors and ex-spouses. The grantor can feel comfortable knowing what they leave behind for their family doesn't end up in the hands of someone they've never met before. A fully discretionary trust is free from almost all creditors in most states, but careful attention should be paid that the beneficiary is not be the trustee of such a trust. Whether a beneficiary may be a trustee is a case-by-case question depending on the purpose of the trust and how it is drafted.
Trusts may allow assets to be available for the beneficiary's "special needs," yet allow the beneficiary to remain qualified for governmental benefits. If a beneficiary has a disability and may need Medicaid or SSI in the future, a special needs trust should be considered. This trust provides that assets are available only for purposes above and beyond basic needs, which is what the governmental benefits are designed cover. The same concept may be applied even if a beneficiary does not have special needs, but rather is financially immature or needs some motivation to not rely on inheritance as the primary means of support.
Trusts enable someone other than the beneficiary to manage the funds for the beneficiary's benefit, if appropriate. This is particularly useful if the beneficiary has not attained sufficient maturity or discretion, even if they have attained the legal age of majority.
There are many good reasons to utilize trusts as part of estate planning; probate avoidance is but one. Remember, once the toothpaste is out of the tube, it may be difficult or impossible to get it back in the tube—in other words, it may be impossible to get those protections in another manner.