The Top 5 Reasons A Trust Should Be Part of Your Estate Plan

The Top 5 Reasons A Trust Should Be Part of Your Estate Plan

December 15, 2021

Is that your final answer? It’s easy to think about how you would spend the 1,000,000 dollars game show winnings from Who Wants to Be a Millionaire, or any other gameshow that’s actually around nowadays.  It’s not so easy to think about the final answer, how do you want your assets to pass when tomorrow starts without you. While most know estate planning is important, not everyone does something about it.  According to, almost two-thirds of Americans say that having a will is somewhat or very important, yet only one-third actually have estate planning documents.  

Wills and Trusts are the most common tools to ensure that your final wishes for your financial assets are legally honored. A common misconception is that these tools are only for the extremely wealthy; however, setting up an estate plan benefits people across the income spectrum.

Understanding when trusts should be considered as part of your estate plan helps take some of the confusion out of the planning. Trusts are are flexible instruments that can help ensure that your privacy is maintained, your estate is protected, and your wishes are carried out to your specifications. They can also be an effective tool to minimize taxes when deployed for charitable giving. Most importantly, if you have children that require special care, a trust can ensure that the inheritance does not disrupt existing benefits. Here are five reasons to consider a trust as part of your estate plan.

Avoiding the Time, Expense, and Exposure of Probate

Wills can be an effective way to transfer your estate, but they also make your estate part of the public record, and anything left in a will must go through the probate process. This process ensures that assets are inventoried and appraised, debts are paid, and the remaining funds are distributed to beneficiaries. Besides the loss of privacy, probate can be lengthy and expensive.  

A trust avoids probate because the assets in the trust are not part of the estate. In a “living” or “revocable” trust, the assets transfer into the trust during one’s lifetime and are controlled until death by the trustee (usually the person who sets up the trust) and then are passed to the designated beneficiaries by the successor trustee after death. 

Protecting Your Assets from Creditors

If you are concerned about protecting your assets from creditors or a lawsuit, an “irrevocable” trust can be helpful. In this type of trust, once the assets pass into the trust, they are no longer part of the estate and cannot be pursued by creditors. Unfortunately, the trade-off for this benefit is that it cannot be modified or revoked once created. Irrevocable trusts and proper planning may also reduce estate taxes. 

Ensuring Your Plans are Carried Out, and Your Heirs are Protected

You can structure trusts to meet various conditions before money passes to heirs. In most cases, this ensures that younger generations have time to mature and build their own lives before taking on the responsibility of the inheritance. A famous example is the estate of Princess Diana. William and Harry were both left money and her personal property in a trust. While both could access income from the trust beginning at 25, the whole inheritance did not pass until they achieved 30. Selecting a trustee is very important for this type of trust. The trustee is responsible for handling the assets, including distributions of assets according to the terms of the trust. It’s also a good idea to obtain legal advice on the enforceability of imposed conditions. 

Continued Care for Children with Special Needs 

A special needs or supplemental needs trust specifically provides for a child without impacting government benefits such as Supplemental Security Income or Medicaid. Even a small legacy, as little as $2,000, can result in temporary ineligibility for federal programs until the money is gone. For someone with complex medical needs who requires constant and lifelong care, losing Medicaid benefits can be devastating. 

The Social Security Administration and state agencies have complex rules regarding benefits and assets. Working with an attorney who specializes in this area is essential.  

Charitable Trusts: A Vehicle for Giving, Creating Income, and Reducing Taxes

Charitable trusts allow you to leave a legacy by continuing to support charities that are meaningful to you long after you are here. Many people use charitable trusts to leave all or a portion of their estate to a charity for philanthropic purposes and tax benefits. While these trusts are irrevocable certain charitable trusts can be structured to provide income to you or a beneficiary for a period; then, the remainder of the trust passes to the designated charity. Charitable trusts can be an excellent way to deal with highly appreciated assets such as stocks or real estate when a large tax bill would otherwise be due if sold before passing away.

The Bottom Line

Trusts can be complicated to set up, and costs are involved, but they are beneficial instruments for a broad range of estate planning strategies. No matter the size of your estate, everyone has similar goals – to pass on assets smoothly, protect loved ones, and minimize taxes. We encourage you to talk to your estate planning attorney about what type of vehicle is most appropriate for you. 

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Bloomberg Barclays US Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate-term investment-grade bonds traded in the United States and is used for measuring the performance of the US bond market. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is maintained by MSCI Inc., a provider of investment decision support tools; the EAFE acronym stands for Europe, Australasia and Far East.  

This work is powered by Seven Group under the Terms of Service and may be a derivative of the original. More information can be found here.