Is Setting Up a Trust Right For You?

This is a post by MPFJ staff writer, Jeff. Jeff writes about Sustainable living and finances at his website, Sustainable Life Blog. Jeff really enjoys traveling with his wife as much as he can, to wherever he can.

A lot of people think that trusts are only for people with huge amounts of wealth, and they simply don’t bother looking into them because they have more important things (financially) to worry about.

People just like me, who own a house, have a few assets in various retirement accounts and money in the stock market and a net worth of around 6 figures don’t think that trusts are for them.

Here’s the thing though – a trust may be just the thing for you (and me). Trusts are great for handing down assets to your children or spouse while lowering your tax burden. Another great reason for a trust is so that your family can have immediate access to your assets. If you simply have a will, the estate may end up in probate court and could take quite a while for your heirs to get access to. In addition to access delays, they can also cost you (your trust) money. Raise your hands if you like paying lawyers even more money……Anyone? Thought so.


So, Why Should You Create A Trust?

A trust is simply a tool to help you lower your tax burden when transferring assets.

They also help make sure that your wishes are carried out after your death. For instance, if you really like the charity Performing Animal Welfare Society, and want to see a significant portion of your assets passed on to that charity a trust can do that for you. A trust can also ensure that your assets are directed to the right person when you pass on. You can leave the majority of the trust to your second wife, and make sure that the children from your first marriage are taken care of.

One of the most important benefits of a trust (in my mind) is privacy. With a will, everyone will see what your holdings are and how they are distributed among your loved ones. That is not so with a trust.


Two Main Types

There are two main types of trusts that we will talk about – revocable trusts and irrevocable trusts.

An irrevocable trust is something that can not be changed once the trust is set up unless the beneficiary approves it. For instance, if you wanted to fund a trust for your child or spouse and created an irrevocable trust, your child or spouse would be the only ones who could change things within the trust. Once you create the trust, the assets are officially out of your control.

A revocable trust (sometimes called a revocable living trust) is a trust where the grantor (you) can change the terms if need be. The trust also dispenses income to the grantor (you) until your death, and then the trust and income go to the beneficiaries. The dispensation of funds from the trust can also happen when and how you specify. Lets say you set up a trust with 1 million in it, and happen to pass on while your twin children are in high school. Instead of them waking up one day parentless millionaires, the trust can be set up to pay for their schooling, then hold and grow the money until an age specified by you – say 25% of assets when they are 24, 50% of assets when they are 35, and the remaining 25% when they are 42. That way, you wont present an 18 year old with a half million dollars and have them wonder where it went in 4 years.

All in all, while trusts are more expensive than wills to set up, they do offer significant benefits even if you don’t have a lot of assets. Trusts can assist with your asset distribution and help your estate avoid a costly probate. Trusts can also make sure that your assets are distributed how you want them to be.

There are many types of trusts, but these are the two most common for middle and lower income households looking to preserve and pass on wealth.

How about you all? Do you have or have you ever thought of setting up a trust for you and your family? Why or why not?

Share your experiences by commenting below! 

****Image courtesy of