Since I reviewed most of my clients’ estate plans last year, I’ve had a few questions about when it makes sense to have a trust, especially since you need to have $5 million dollars in your estate ($10 million for couples) before you have to pay tax on your estate. The answer depends largely on your wishes and personal preferences. Here are a few reasons why people choose to create a trust:

Avoid Probate
Probate is the process of going to court to settle one’s estate according to either a will, or state laws. If there is property in multiple states in an estate, probate can become a headache and lawyer fees can add up. Avoiding probate is beneficial mainly for heirs, because spouses can own things jointly or use beneficiary designations on accounts like IRAs.

Keeping Your Estate Private
When you go to probate, your business becomes everyone’s business because your estate becomes a matter of public record. Unfortunately, I’ve heard horror stories about less scrupulous professionals that try to make a living off selling bad investments to beneficiaries of estates that they’ve read about in the county news. A trust allows you to execute your wishes away from the public eye.

Protecting Beneficiaries
Let’s face it, not everyone is good with money. I have heard of situations both professionally and personally where inheritances in lump sums were not a good idea. With a trust, you can also offer guidance on distribution of assets. My trust is set up so that my kids get a portion at certain ages like 25, 30, and the remainder is distributed at 35.

Protection from Creditors
Creditors can be an unexpected beneficiary in an estate if you are not careful. I heard about an example of this in one of my forums. A $25 million dollar estate was being distributed to the remaining son. Unfortunately, that son was involved in a partnership that had recently been sued for $22 million. As a result, when the son finally inherited the estate, the majority of it went to creditors. A trust can help protect against this sort of situation.

Having a trust is not absolutely necessary. The main benefit is for kids. If you are single, or don’t have kids, you may still protect your spouse from creditors, or maybe just make things a little more organized. Either way, the choice is yours.

FYI – The average cost of a complete estate plan including a trust can range from $1,000 to $1,800. About the same price I charge for a financial plan, or you would pay for cable TV for a year.

Rich Feight, CFP
Rich Feight, CFP

Hi, I'm Rich Feight I'm a fee-only Certified Financial Planner, successful business owner, and self-made millionaire that knows how to beat the system and become wealthy. I have a lot of clients that have done it too. I'm also pretty good at finding that ever-elusive work/life balance so many of us strive for. Lucky for you I have an abundant mindset and give all my knowledge away on my blog. So if you want to know what it takes to become a millionaire, follow me.

Leave a Reply

Your email address will not be published.