Most of us associate financial trusts with the well-to-do, with images of sharply dressed “trust fund kids” and other upper-crust stereotypes. The truth is that trusts aren’t only for the wealthy. Smart, frugal planners find that a trust can bring important long-term goals within reach.
Trusts help you protect and direct your money after your death. Yes, a will can also do this — but a trust does it more specifically, and more privately, in a way that’s less susceptible to legal challenges. A trust might be a smart tool for you if you’re looking for any of these long-term financial goals.
1. Keep a finger on your children’s financial security. By setting up a trust for your children, you can pay your children specific amounts at specific intervals or for specific expenses, protecting the bulk of the money you leave them until they reach a certain age. Most experts concur that most young adults under 25 aren’t ready for the responsibility of a lump-sum inheritance.
2. Avoid estate taxes. The proceeds from your life insurance policy’s death benefit could turn the value of your estate into a tax nightmare. An irrevocable life insurance trust can shelter death benefit proceeds from estate taxes. Be sure to consult a qualified tax professional, as the details are constantly changing.
3. Avoid probate. Probate is a notoriously lengthy process that can prevent the beneficiaries named in your will from seeing any of their inheritance for as long as a year or more. Probate is fairly straightforward for smaller estates, but if your estate will be much over $25,000, it could make sense to investigate a revocable living trust.
4. Avoid disputes. If you suspect relatives are likely to dispute the division of certain property and assets after your death, avoid the drama by putting those things into trust. Trusts are less likely to be disputed and more difficult to dispute if they are.
5. Protect property in your estate. If you’re worried that your children might spend whatever money you leave them in a single blaze of glory, or if you’d rather your daughter’s spouse not be involved with any money you leave her, use a trust to control your assets’ distribution and access. A trust allows you to drill down restrictions to the specifics, such as “unless you use some of this money for college expenses and actually earn a degree, the rest is untouchable.”
6. Protect your privacy. Probate is a matter of public record; trusts (with few, specific exceptions) remain private. If you would rather not have your financial affairs aired for one and all after your death, a trust keeps things close to the chest.