A very common misconception among people engaged in estate planning is the idea that only the extremely wealthy should establish a trust. This is actually not true. If you have more than $100,000 worth of assets, it is typically a good idea to set up a trust. There are other circumstances when a trust would be a good idea:

  • A business, real estate property, or an art collection makes up a large portion of your assets
  • Paying out your estate to your heirs in very specific ways
  • Setting aside a portion of your estate for children from a prior marriage
  • Maximizing exemptions from estate taxes
  • Providing benefits to a disabled relative

Benefits of a Trust

Control: With a trust, you can decide exactly how much of your assets are distributed, when, and to whom. For instance, if some of your heirs are less responsible with money, you can arrange the trust so that they receive their disbursements in smaller amounts and at a later date. You can also set conditions such as graduation from college or marriage, so that the money is distributed in exactly the way you prefer.

Reducing Taxes: There are many different types of trusts, and they are subject to taxes in different ways. Generally speaking, trusts are a great way to reduce the amount of estate and gift taxes that would normally be paid.

Avoiding Probate: Probate is a long and costly process. reports that probate can cost between 5-7% of your estate. By setting up a trust, your heirs can get access to your estate quickly and easily and bypass the probate process altogether. Another advantage is that the probate process is public record. If you would like to distribute your assets privately and provide privacy to your heirs, a trust is the perfect way to do that.

Protecting Your Assets: Transferring your assets to a trust can protect them from lawsuits and creditors. If you can survive financially without many of your assets, creating a trust is a good way to protect them long term.

Supervision: For most types of trusts, you will name a successor trustee. This person will manage the assets after you pass away, and by choosing a savvy and capable trustee, you can ensure that your assets will be managed wisely. This is a great solution if your spouse or heirs lack the skills to manage your assets effectively, or if you wish to distribute assets to children or disabled relatives who may not be able to watch over your assets on their own.

Providing for Charity: Trusts can be drafted so that a portion of your estate goes to charity. For instance, some trusts are designed so that they give the maximum tax-exempt amount to your heirs and then transfer the rest of your estate to charity. If you would like to donate a large portion of your assets, a trust is an excellent way to do that.

Like all forms of estate planning, you will need professional help to establish a trust. According to Investopedia, you will need to pay between $1000 and $3000 for attorney fees when you are setting up a trust. But if these benefits appeal to you, creating a trust is a smart investment.

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