It’s true that trusts and trust funds are associated with family dynasties and the uber-wealthy – but trusts are no longer just for the rich.
Trusts are legal entities that are designed to hold money and other assets, as provided by the grantor. They’re then managed by a third party, or trustee, for the good of the trust’s beneficiaries. While they’re becoming more common, they should be used by far more people.
Why should you bother with a trust?
If you have a house, a retirement plan, and a little money saved or a few investments that you’d like to know will eventually benefit your loved ones, placing these into a trust can be very smart. Here’s why:
- Moving your assets into certain kinds of trusts can help with Medicaid planning. Qualified income trusts, for example, can be used to plan for a time when you may need nursing home care so that your assets don’t have to be completely depleted.
- Other kinds of trusts can be used to protect a loved one’s entitlements. A special needs trust, for example, can be used to make certain that a disabled adult child has the benefit of your hard work without losing access to Supplemental Security Income and other special-needs benefits.
- You’re better able to protect the assets from depletion. A well-constructed trust can insulate your family’s wealth from those who might otherwise stake a claim, including a beneficiary’s creditors or their disgruntled ex-spouse.
- You can protect your beneficiaries from themselves. You set the terms of your trust, so that means you can exercise control over how the money is disbursed long after you are gone. That means you can do things like make certain, for example, that the money is doled out slowly, according to goals that you’ve set or by your beneficiary’s ages. That can help keep them from running through the money too quickly.
- A trust offers more privacy. Probate proceedings are a matter of public record, but a trust isn’t part of probate. If you don’t want other people to know what you’ve left behind so that you can protect your family’s privacy, a trust is superior to a will.
- You can sometimes find tax advantages. Funding a trust can reduce the overall value of your estate, which can lower the associated tax burden and leave more for your loved ones.
There are all kinds of trusts available, but understanding precisely how to best accomplish your goals may be much more efficient and effective if you seek legal guidance before committing to a particular approach.