Trusts are usually not needed until your net worth exceeds 5 million or you have a child who will need lifetime care as an adult.
Unless you intend to give your entire estate to the guardians of you children if you and your wife pass then you will need an trust if you want to leave instructions on how funds should be used to care for your children.
There are two basic types of trusts: intervivos trusts and testamentary trusts. Intervivos trusts are created during the life of the person creating the trust. Testimentary trusts are created in by a will and only come into effect upon the death of the person creating the trust.
Intervivos trusts are often used for the larger estates referenced above to achieve tax savings and streamline post-death administration of the estate. A testimentary trust is often more appropriate for younger families without substantial assets. Testimentary trusts are often used to hold substantial life insurance proceeds for the benefit of children.
As an attorney who does estate planning, I am very wary of do-it-yourself arrangements. My general attitude (as biased as it may be) is that you can pay me now to do it right, or you can pay me later to clean up the mess--and it will cost substantially more for me to clean up the mess. Some people are comfortable with risking the mess cleanup costs because they will only occur after their own death. But do you really want to burden your spouse or the guardian you choose for your children with a messy estate? This is one of those instances where I believe you get what you pay for.
