Daily Capital

What is a Trust, and Who Needs One?

For more on estate planning and trusts, read our free “Guide to Legacy & Estate Planning.”

Read the Guide.

The Tool To Beat

Most people view trusts as something only necessary for the ultra-wealthy. But like a good whiskey, trusts don’t need to be just for the upper-income echelons. They can be a good, tax-savvy way to pass your estate on to your heirs, regardless of the size of your assets and family, and can help you manage your property during your life and beyond.

What is a Trust?

A trust is a legal entity you set up to hold, safeguard, distribute and control those assets you place into the trust. When it comes to managing your trust, there generally is a trustor (a.k.a. the “grantor” or “settlor”) who sets up the trust; the trustee who manages the trust’s properties; the beneficiary who receives the assets of the trust; and the successor trustee (and beneficiary), who takes over if the original trustee is unable to serve.

A trust carries rules and provisions that you create in order to dictate what happens to the assets held under the ownership of the trust. Because there are various types of trusts, you will want to decide what type meets your objectives the best, and ensure you follow the rules for that trust so that the legal requirements continue to be met.

Why Would You Set Up a Trust?

There are many reasons to set up a trust. Some – but not all – of the many benefits can include:

  • Avoiding or reducing estate and gift taxes
  • Avoiding or reducing the complex and lengthy probate process
  • Protecting your estate’s assets from beneficiaries’ creditors or legal situations
  • Donating to charities in tax-efficient manners
  • Protecting you and your beneficiary’s privacy (terms of trusts are usually not public, unlike the probate process)

Who Needs a Trust?

While we don’t believe a trust is necessarily exclusive only to high net-worth people, if you have a net worth over $10 million, you will likely want to consider a trust. Also, for those who want to leave property to a beneficiary who is incapable of handling their own finances – through disability or otherwise – trusts can be a valuable tool. Individuals who want to ascertain a certain degree of control of how the assets are utilized or distributed may also want to consider trusts to outright bequests.

In addition, a trust may be a right vehicle for you if you:

  • Are middle-aged or older – or in poor health
  • Not able to take advantage of simpler probate-avoidance methods
  • Own out-of-state real estate
  • Are not worried about big creditors’ claims
  • Have incapacity concerns.

Of course, this isn’t a final list of reasons to consider a trust, so you’ll want to contact an Estate Attorney to see if a trust is right for you.

Our Take

Trusts can be helpful for families of all sizes and incomes, but creating and administering a trust can be (but isn’t always) a complex, time consuming and a relatively expensive process. Deciding whether to set up a trust, the type of trust, and what provisions to include depend on your individual circumstances and goals.

To learn more about trusts and how they can fit into your overall legacy planning, read our free “Guide to Legacy & Estate Planning.”

Read the Guide.

All legacy/estate planning analysis and insight provided is extended to you as a courtesy for educational purposes only. You should not rely on this information as the primary basis of legacy/estate planning decisions. We are not licensed legacy/estate planning and charitable giving professionals. You should consult a qualified licensed professional regarding your specific situation.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Paul Deer, CFP®
Paul is a Certified Financial Planner® and has been with Personal Capital since they first moved to Denver in 2013. With over a decade of industry experience, Paul’s current role as Director of Advisory Service keeps him focused on a team of over 60 Financial Advisors and their clients.

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