Retired couple asks: do I need a trust with $1.5 million?

A retired couple wondering “do I need a trust” after building roughly $1.5 million in assets got a blunt answer from MarketWatch’s Moneyist columnist Quentin Fottrell: probably not, at least based on the estate plan they described.

The couple, writing anonymously to Fottrell, said they are in their mid-to-late 60s, retired from federal jobs and receive $120,000 a year in pensions. They also have retirement accounts, inherited IRAs, long-term care insurance, wills and powers of attorney.

Their worry is the classic estate-planning headache: avoiding delay, public court proceedings and possible drama for two adult children after both parents are gone.

Do I need a trust if I already have a will?

Fottrell’s answer was no for this couple, because many of their biggest assets already have beneficiary designations or joint ownership arrangements. Probate is the court process for validating a will and distributing assets, and property with named beneficiaries or rights of survivorship can often pass outside that process.

According to the couple’s letter, the wife has $1 million in a Thrift Savings Plan account, while her husband has $200,000 in his TSP. She also has about $350,000 in inherited IRAs, including one stretch IRA and three accounts subject to SECURE 2.0 rules that must be emptied within six years.

The couple said their adult children are equal beneficiaries on the husband’s TSP, the wife’s life insurance and her inherited IRAs. The wife’s TSP names her husband for 50% and the two children for 25% each.

The remaining assets include a $400,000 house, vehicles, bank accounts and personal property. The couple said those are jointly owned with rights of survivorship, and their wills direct that those items be sold after the children have a chance to handle sentimental belongings.

Why the Moneyist said a trust may be unnecessary

Fottrell wrote that the couple had already covered much of the estate-planning checklist: wills, financial and healthcare powers of attorney, long-term care insurance, organized records for their executor and clear beneficiary designations.

He said their major accounts and jointly held property appear set up to transfer automatically, reducing the role of probate. He also noted that their pensions and future Social Security benefits are not probate assets.

The wife plans to claim Social Security at 70, with an estimated benefit of $4,000 a month. Her husband plans to claim at the same time based on her work record, with an estimated $2,000 monthly benefit, according to the couple’s letter.

Fottrell did flag one live issue: taxes. He said the inherited IRAs governed by SECURE Act rules create a need to plan required withdrawals, especially with $120,000 in annual pension income before Social Security starts. He suggested speaking with a tax adviser about Roth conversions and avoiding a possible jump into a higher tax bracket.

When a trust can still make sense

Fottrell said trusts can be useful in more complicated family situations. He pointed to the couple’s relatives, one of whom used a trust in a second marriage to balance a spouse’s interests with children from a prior marriage, while another used one for long-term medical-care concerns.

A revocable living trust can also add privacy and make management smoother if someone becomes incapacitated, Fottrell wrote. Still, he said those benefits may be limited for this couple compared with the cost, paperwork and ongoing maintenance.

He also raised one possible alternative for the home: a transfer-on-death deed, if available. Fottrell described it as a lower-cost way to pass a house directly to children and avoid probate for that asset.

The bottom line from MarketWatch’s Moneyist: this couple’s estate plan is already unusually tidy. A trust is not off the table forever, but based on the facts they gave, Fottrell said they do not appear to need one now.

This story draws on original reporting from MarketWatch.