Trusts for Aging Parents: Understanding Your Options

Trusts have a reputation for being tools of the wealthy, but they can benefit families at many income levels. A properly structured trust can avoid probate, provide for ongoing asset management, protect assets from certain claims, and give precise control over how and when assets are distributed.

Whether a trust makes sense for your parent depends on their specific situation—the value and types of assets they own, their family circumstances, their goals, and their concerns. This guide will help you understand the different types of trusts, when they're beneficial, and what's involved in creating and maintaining them.

Why Consider a Trust?

People create trusts for several key reasons:

Avoiding Probate

Probate is the court-supervised process of distributing someone's assets after death. It can be time-consuming (6 months to 2+ years), expensive (2-7% of the estate in some states), and public (anyone can see the court records). Assets held in a properly funded trust bypass probate entirely, passing directly to beneficiaries.

Planning for Incapacity

A revocable living trust provides seamless management if your parent becomes incapacitated. The successor trustee simply takes over managing the trust assets—no court involvement required. This is often simpler than using a power of attorney, which some financial institutions resist honoring.

Maintaining Privacy

When assets pass through probate, the will becomes a public document. Anyone can see what your parent owned and who inherited it. Trust administration happens privately—there's no public record of the trust's contents or distributions.

Controlling Distributions

A trust can specify exactly when and how beneficiaries receive assets. Rather than inheriting everything at once (which might be lost to poor decisions, divorce settlements, or creditors), beneficiaries can receive distributions at certain ages, for specific purposes (education, home purchase), or as regular payments over time.

Protecting Beneficiaries

Trusts can protect beneficiaries from their own poor judgment, from creditors, from divorce settlements, and from loss of government benefits. A special needs trust, for example, can provide for a disabled beneficiary without disqualifying them from Medicaid or SSI.

What Is a Trust?

A trust is a legal arrangement with three key roles:

• Grantor (or Settlor): The person who creates the trust and puts assets into it
• Trustee: The person or institution that manages the trust assets according to the trust's terms
• Beneficiary: The person(s) who benefit from the trust assets

The grantor creates a trust document specifying how assets should be managed and distributed. The trustee follows these instructions, managing assets for the beneficiaries.

Trust vs. Will

Feature	Will	Trust
Takes effect	At death	When created (living trust) or at death (testamentary)
Probate	Required	Avoided (for properly funded trusts)
Privacy	Public record	Private
Incapacity planning	No	Yes (living trust)
Cost to create	$300-$1,000	$1,000-$5,000+
Ongoing maintenance	Minimal	Must be funded and maintained

Types of Trusts

Revocable Living Trust

The most common trust for estate planning.

How it works:

• Grantor creates trust and transfers assets into it
• Grantor typically serves as trustee while alive and capable
• Can be changed or revoked at any time during grantor's life
• Successor trustee takes over if grantor becomes incapacitated or dies

Benefits:

• Avoids probate for assets in the trust
• Provides for management during incapacity
• Keeps affairs private (not public record)
• No change in income taxes (grantor still pays)
• Flexibility to change terms

Limitations:

• No asset protection from creditors (grantor's assets)
• No estate tax benefits (assets still in grantor's estate)
• Must actively transfer assets ("fund" the trust)
• Costs more to set up than a will

Irrevocable Trust

Generally cannot be changed after creation.

Benefits:

• Removes assets from the grantor's estate (potential estate tax savings)
• May protect assets from creditors and lawsuits
• Can help with Medicaid planning (with significant advance planning)

Limitations:

• Loss of control over assets
• Difficult or impossible to change
• May trigger gift taxes
• Complex rules and requirements

Special Needs Trust

For beneficiaries who receive or may need government benefits (Medicaid, SSI).

• Provides supplemental support without disqualifying from benefits
• Can pay for things benefits don't cover (travel, entertainment, personal items)
• Requires specific language and careful management

Testamentary Trust

Created within a will and only takes effect at death.

• Goes through probate (unlike living trusts)
• Useful for providing ongoing management for beneficiaries
• Often used for minor children or beneficiaries who shouldn't receive assets outright

When a Trust Makes Sense

Strong Candidates for a Trust

• Property in multiple states: Avoids probate in each state
• Privacy concerns: Trust administration is private, probate is public
• Blended families: Precise control over who gets what and when
• Special needs beneficiaries: Provides without disqualifying from benefits
• Concern about incapacity: Successor trustee can manage assets seamlessly
• Beneficiaries who shouldn't receive assets outright: Minor children, those with addiction issues, poor money managers
• Large estates: May reduce estate taxes with proper planning

When a Trust May Not Be Necessary

• Modest estate with few assets
• Assets already have beneficiary designations (retirement accounts, life insurance)
• Joint ownership with right of survivorship
• State has simplified probate procedures for small estates
• All beneficiaries are responsible adults who can receive assets outright

Funding a Trust

Creating a trust is only the first step. For the trust to work, assets must be transferred into it.

Assets to Transfer

• Real estate: Deed must be changed to trust's name
• Bank accounts: Retitle in trust's name or name trust as beneficiary
• Investment accounts: Transfer to trust or change beneficiary
• Business interests: Requires proper documentation
• Personal property: Assignment document

Assets That Typically Stay Outside

• Retirement accounts: Naming trust as beneficiary has tax implications—often better to name individuals
• Life insurance: Trust can be beneficiary, but consider implications
• Vehicles: Often simpler to leave out of trust

Choosing a Trustee

Trustee Responsibilities

• Manage trust assets prudently
• Follow the trust's terms exactly
• Act in beneficiaries' best interests
• Keep accurate records
• File tax returns for the trust (if required)
• Distribute assets according to the trust terms

Options for Trustee

Individual trustee:

• Family member, friend, or beneficiary
• Pro: Knows the family, no cost (or lower cost)
• Con: May lack expertise, potential for conflict

Professional trustee:

• Bank trust department, trust company, attorney
• Pro: Expertise, impartiality, continuity
• Con: Ongoing fees (often 0.5-1.5% of assets annually)

Co-trustees:

• Combination of family and professional
• Pro: Family involvement with professional oversight
• Con: Must agree on decisions, more complex

Trust Costs

Initial Setup

• Simple revocable trust: $1,000-$3,000
• Complex trust: $3,000-$10,000+
• Online trust services: $200-$500 (limited guidance)

Ongoing Costs

• Individual trustee: Often unpaid or modest fee
• Professional trustee: 0.5-1.5% of assets annually
• Trust tax returns: $500-$2,000+ annually (if required)
• Trust amendments: $200-$500+ each

Common Trust Mistakes

Even well-intentioned trust planning can go wrong. Here are the most common mistakes families make:

Creating but Not Funding the Trust

The most common mistake. A trust only controls assets that have been transferred into it. If your parent creates a trust but never re-titles their home, bank accounts, and investments in the trust's name, those assets will go through probate anyway. The trust was worthless effort.

Forgetting to Update the Trust

Trusts need periodic review and updates. Family circumstances change, tax laws change, and the original provisions may no longer make sense. A trust drafted 20 years ago may name a deceased spouse as successor trustee, include provisions for children who are now adults, or fail to address grandchildren born after it was created.

Naming the Wrong Trustee

Choosing a family member as trustee can save money, but it can also cause problems. The trustee must be responsible, financially capable, and willing to make difficult decisions. Family dynamics, conflicts of interest, and geographic distance can all complicate trustee duties. Sometimes a professional trustee or co-trustee arrangement is better.

Using a Trust for Medicaid Planning Without Expert Guidance

Some people believe that putting assets in a trust will protect them from Medicaid spend-down requirements. This is true only for certain types of irrevocable trusts, created well in advance (typically 5 years due to lookback rules), and structured very specifically. A standard revocable living trust provides no Medicaid protection. Improper planning can actually make things worse.

Assuming a Trust Eliminates Estate Taxes

A standard revocable living trust does not reduce estate taxes. Assets in the trust are still counted as part of the grantor's estate. Estate tax planning requires more sophisticated strategies—and for most families, estate taxes aren't a concern anyway (the federal exemption is over $13 million per person in 2025).

Using Online Templates for Complex Situations

Online trust services can work for simple situations, but they lack the personalized advice needed for complex family dynamics, significant assets, or special circumstances. A poorly drafted trust can create more problems than it solves. For most families, the cost of professional advice is worthwhile.

Trust Administration After Death

When the trust creator dies, the successor trustee must administer the trust—following its terms to manage and distribute assets. Here's what that involves:

Immediate Steps

• Obtain death certificates (multiple certified copies needed)
• Notify financial institutions of the death
• Secure and inventory all trust assets
• Notify beneficiaries of the trust's existence and their rights
• Consult with an attorney if needed

Ongoing Administration

• Manage trust assets prudently until distribution
• Pay valid debts, expenses, and taxes
• File required tax returns (final income tax for deceased, estate tax if applicable, trust tax returns if required)
• Keep detailed records of all transactions
• Communicate with beneficiaries

Distributions

• Follow the trust's terms exactly
• Ensure all debts, taxes, and expenses are paid before final distributions
• Obtain receipts and releases from beneficiaries
• Prepare a final accounting if required

Trust administration can take several months to complete, but it's typically faster and less expensive than probate. A professional trustee or attorney can help navigate complex situations.

Getting Started With a Trust

If you think a trust might benefit your parent, here's how to proceed:

1. Gather information: Make a list of all assets, their values, and how they're currently titled. Note any special circumstances (property in multiple states, beneficiaries with special needs, blended family).
2. Consult an estate planning attorney: Look for someone who specializes in elder law or estate planning. Many offer free initial consultations.
3. Discuss goals and concerns: What does your parent want to accomplish? Avoiding probate? Protecting assets? Providing for a disabled beneficiary? Controlling distributions?
4. Review the attorney's recommendations: The attorney should explain whether a trust makes sense and what type, or whether other tools (beneficiary designations, joint ownership, transfer-on-death deeds) might be simpler and equally effective.
5. Execute and fund the trust: If you proceed, have the attorney prepare the trust document, sign it with proper formalities, and then transfer assets into the trust.
6. Maintain the trust: Review periodically, update as circumstances change, and keep trust assets properly titled.

Frequently Asked Questions