Sure, everyone has an estate of one kind or another—property they want to pass along. But do you need a trust? Trusts are just for extraordinarily wealthy folks, to avoid estate tax or benefit “trust fund babies,” right?
Not so fast.
The fact is, most of us want to pass our estates to our loved ones directly when we die—and for some people this function is satisfied by use of a simple (or not-so-simple) will. But owners of some estates falling in the “less than obscenely wealthy” category may still benefit from creating a trust.
First of all, let’s get clear on what a trust is—a legal entity that owns property. And not unlike a company with bylaws dictating how to run the business, a trust is managed based on instructions made by the trust’s creator (this means you!).
The other thing to know about trusts and why they can’t be compared to wills is that they make sure the trust creator’s property is efficiently managed during their lifetime. In other words, the same way a business can carry on even if the founder steps down, so too can a trust. A trust can continue to disburse assets according to your wishes even if you cannot manage the “company” due to disability. What is more, a trust need never die even after you do.
Creating a trust can also add to your capacity for making specific instructions on how assets can be disbursed—including creating a “slow-release capsule” (our term, not a legal term of art) of funds for beneficiaries: you can have the trust provide them an allowance of a certain amount per month or in certain circumstances, rather than having them receive it all in one lump sum. This is particularly good where one of your intended beneficiaries has shown a propensity to wasteful spending, where they have problems with creditors, or maybe there are addiction concerns. Trusts are also useful when you have minor children who shouldn’t receive property right away. Parents creating the trust get to say when and how their minor children will receive any money.
You may also have a beneficiary with special needs. In those cases, a trust can be crafted to conform to the rules for a “supplemental needs trust.” There are a number of extra rules and regulations that apply to this kind of trust, but the short and sweet about these trusts is that you can create them such that your loved one with special needs can receive help from state and federal aid programs, and still live life with some creature comforts. Without such a trust to provide them with ongoing added support, they may live a meager lifestyle just so that they can receive the aid they need. The programs have income and asset limits—from which the use of a special needs trust is exempt, so long as it is properly utilized. These types of options in trusts are often utilized by people who fall far short of being millionaires.
So, while the ultra-wealthy people in this world create trusts for tax or wealth preservation, by no means are these the only scenarios where it makes sense! And these are just a few purposes for trusts. All told, despite their public image, trusts are useful for many reasons and to many different kinds of people. It’s all about the specifics of your situation.
We Can Teach You More About Creating a Trust
If you’re considering creating a proper trust, a good place to start is by attending one of Promise Law’s free estate planning workshops. These workshops provide a great foundation of information that everyone needs to make sound planning decisions. Moreover, if you attend a workshop, you also get a complimentary one-on-one consultation.