WHAT’S THE BIG DEAL ABOUT HAVING A TRUST ANYWAY?

I’m often asked by clients, “What’s the big deal about having a trust fund anyway?” Though not always asked in such a brash fashion, the topic of trusts arises when a client hears that a friend or colleague has set one up, piquing their interest. They’ve heard about trusts but wrongly thought they were designed for the mega-rich as a sophisticated method of avoiding taxes. While it’s true that that’s sometimes the case, trust funds aren’t usually set up to avoid taxes. In fact, there are many reasons to set up a trust.

So, the Question Is, Why Have a Trust?

A common reason for setting up a trust is to protect someone important to you. We each have loved ones we want to care for after we’re gone, but sometimes that means protecting them from themselves. You may have a relative that can’t be trusted with money, or another that has bill collectors calling night and day. Do you have someone like that in line to receive an inheritance? If so, a trust can be set up to protect your loved ones and your money and instill some discipline in a relative that would otherwise spend their inheritance on a sports car.

A trust can be set up with provisions that determine when an adult child or beneficiary will be in complete control of the assets in the trust. This is a personal decision for each family, and often not an easy one. I once had a client tell me, “I want to protect my kids from themselves in their 20’s, but I don’t want to control them for the rest of their lives from beyond the grave.” Trust funds will occasionally have milestone distributions– for instance disbursing 20% at age 25, and the remainder at age 35– that determine when the trust fund assets are depleted. These are determined by the person setting up the trust and are a great way to introduce assets to a loved one.

Another Kind of Protection

It’s often a good idea to protect family members from themselves. It can also be a good idea to protect those you love from other family members. A wide array of familial and marital situations can make things complicated when it comes to the family’s finances. It’s healthy for spouses to agree on the terms of disbursement for a trust to their heirs and have it in writing to avoid ambiguity. A trust can be used to make sure that your spouse is taken care of after your death, and also ensure that your assets remain in your bloodline should there be marital complications down the family tree.

Trusts can Uncomplicate Your Estate Transfer Process

A trust can also simplify the estate transfer process for your heirs. If for example you own real estate property out of state, that property has to go through ancillary probate, which is a legal process that takes time and money to accomplish. However, if you title your property properly in a trust, you can avoid probate altogether. This doesn’t just apply to real estate; it goes for all assets placed in the trust. Assets placed in a trust bypass probate and go straight to the heirs as outlined by the trust. This simplifies the process dramatically.

Of the many reasons to set up a trust, this article just barely scratches the surface. A trust can be appropriate, regardless of the size of your net worth. If you want to know if a trust makes sense for your financial situation, consult an estate-planning attorney to explore your options. Your financial advisor can coordinate with your attorney on how the trust fits into your overall estate plan. By understanding the different aspects and benefits of setting up a trust, you can learn how to leave behind a lasting legacy.

Information sourced from Modera’s Financial Advisors in Atlanta, GA.

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