When you hear “trust fund,” do you picture grand estates and luxury yachts? In reality, a trust fund — or simply, a trust — is an effective estate planning tool, accessible to individuals across a broad income spectrum, looking to achieve a specific objective with their wealth.
In simple terms, a trust is a mechanism for transferring assets. It proves particularly beneficial for parents with minor children and for those wanting to spare their beneficiaries the inconvenience of court proceedings in the event of their incapacity or death.
Why might you want to keep your family away from court (a process known as avoiding probate)?
Perhaps you may prefer to keep the details of the assets you’re leaving your heirs private. However, when you pass on assets through a will, it must go through probate before being executed, causing your estate to become part of the public record. Conversely, a trust is a confidential document that permits the allocation of assets upon your death without the need for probate. This circumvents the potential for lengthy, complicated court processes that can tie up your assets for an extended period, preventing your family from accessing your assets as promptly as they might want or need.
If you have minor children, a trust is necessary to pass on your assets, as minors cannot directly inherit. You will need to designate a trustee to manage these assets on behalf of your children. Even if your children are adults, a trust can safeguard the assets you leave them from creditors, legal judgments, divorce, or even their own poor financial management habits.
You can even establish a trust for yourself in case you become incapacitated and cannot manage your own finances at some future time. The trust assets are managed by a successor trustee, which avoids the need for a court-appointed conservator if you become incapacitated.
Trusts are also wonderful tools for those who are members of a blended family. If you are remarried and have children from a previous marriage, you can provide for your current spouse while ensuring your assets pass to your children from another marriage using a by-pass trust. With this kind of trust, the assets will pass to your children free of estate tax upon the death of your surviving spouse.
As you can see, there are many reasons to create a trust, and being wealthy isn’t necessarily one of them. You can learn more about how a trust might benefit you or your family by scheduling a Family Wealth Planning Session™, where we can identify the best strategies that are unique to you and your family.