Understanding Trusts: Essential Tools for Effective Estate Management

Do you want to protect your family’s wealth? Don’t leave your family’s financial future to chance.

Everyone thinks estate planning is only for the wealthy. You know what though…

Estate planning is for EVERYONE. Period. And trusts? They’re one of the most effective and powerful tools you can use to protect your wealth and your family.

Here’s the thing…

68% of Americans don’t even have a will. Most people have no idea what a trust is or how it works. In fact, most people have never even heard of trusts.

If you die without a plan, it doesn’t matter how much money or assets you have. The government is going to decide what happens to your entire life’s worth of hard work.

You know you don’t want that for your family, do you?

Partnering with an experienced estate planning attorney in Cape Cod allows you to make thoughtful and careful decisions about how to protect what matters most to you.

What You’ll Learn:

• What is a Trust and Why You Need One
• The Different Types of Trusts Available
• How Trusts Protect Your Assets and Family
• When to Set Up a Trust
• Common Trust Mistakes to Avoid

What Is a Trust and Why You Need One?

A trust is a legal entity that you transfer ownership of your assets into. A trustee manages those assets according to specific instructions you provide for the benefit of your beneficiaries.

Think of it like a big safe. Instead of giving your assets directly to your beneficiaries, you place them in this “safe” (aka the trust) and give very detailed instructions for when, how, and under what conditions those assets are distributed.

Why on earth would you do this?

Dang, there are like a million reasons. Trusts are one of the most powerful ways you can exert control over your assets after you die. You can control exactly when your beneficiaries get their inheritance. You can also control how much they get and when they get it.

Trusts are not just for the 1%. Trusts are for families like yours who want to solve real problems. Whether you want to avoid probate, protect your assets from creditors, make sure your special needs child is taken care of, or any number of other things — trusts have a solution.

The best part? Trusts are private. This means that no one gets to snoop around your family’s financial affairs in public probate records.

The Different Types of Trusts Available

Trusts aren’t all created equal. There are all kinds of different types with specific purposes in mind.

Revocable Living Trusts

This is, by far, the most common trust because it solves a bunch of different problems.

With a revocable living trust, you put your assets into the trust but you maintain full control over them while you’re alive. You can change it, cancel it, or amend it at any time.

When you die, your beneficiaries skip probate court and get those assets.

The downside of this trust is that you don’t get asset protection from creditors. Since it’s still technically in your control, creditors can go after those assets in a lawsuit, etc.

Irrevocable Trusts

Irrevocable trusts are exactly what they sound like — you can’t revoke it, change it, or cancel it once you set it up.

Terrifying right? Nope.

Irrevocable trusts are actually an INCREDIBLE estate planning tool. Once you transfer assets into an irrevocable trust, you no longer own them. This means they are protected from your creditors and also not included in your taxable estate.

For families that have several million or more in assets, irrevocable trusts are one of the most powerful tools to keep the government’s greedy hands off your money.

Testamentary Trusts

Testamentary trusts are created through your will. They go into effect when you die. These are great for managing an inheritance for a minor child or a beneficiary that you don’t think can handle a lump sum of cash.

Special Needs Trusts

This trust is just as it sounds. They’re created for family members with special needs to provide for them without jeopardizing government benefits like Medicaid or Social Security.

How Trusts Protect Your Assets and Family

Trusts protect in many different ways.

Probate Avoidance

Probate is a public, expensive, time-consuming process that most people dread.

Assets held in a trust skip the probate process. Assets are transferred to beneficiaries much faster and without the hassle of probate court.

Creditor Protection

Certain trusts also protect your assets from creditors, lawsuits, and even divorce settlements. This is HUGE for business owners or people in high-liability professions.

Tax Benefits

Done right, trusts can also help minimize your estate taxes and maximize income tax benefits. Did you know 81% of people with $10+ million in net worth have already created a trust or intend to do so? Estate planning really does equal.

Control Over Your Assets

Trusts give you ultimate control. You’re the boss. Want your kids to have to graduate from college before they get their inheritance? No problem. Prefer to make distributions over a number of years rather than all at once? Trusts can do that too.

Capacity Planning

Say you become incapacitated or unable to make decisions for yourself. A trust allows for successor trustees to step in and manage your affairs without interruption.

Protection From Themselves

Did you know that trusts can actually protect your family from themselves? Beneficiaries that are minors or not quite ready to manage large sums of money can receive their inheritance gradually as they mature.

When to Set Up a Trust

Trust planning is one of those things that you should do early and then update as your life changes. Waiting until it’s too late can be detrimental to your family.

You should consider setting up a trust if you:

• Own real estate in multiple states
• Have minor children or grandchildren
• Want to avoid probate court and the associated time and expense
• Own a business that needs succession planning
• Have concerns about a beneficiary’s ability to manage money
• Have estate tax liability

Trust planning is typically triggered by certain life events. Marriage, divorce, the birth of children, starting a business, inheriting assets from a loved one are all great times to evaluate your estate plan.

Don’t put it off. Estate planning is not a “someday” thing. The time to plan is now, while you’re young and healthy.

Common Trust Mistakes to Avoid

Here are the worst mistakes people make with their trusts.

Not Funding the Trust

Setting up a trust is just the first step. You have to transfer your assets into the trust to “fund it”. An unfunded trust is literally useless.

Choosing the Wrong Trustee

Your trustee has A LOT of power. Don’t just name your oldest child or best friend. Make sure you name someone that is financially responsible and has an extremely high level of organizational skills.

Neglecting to Update Beneficiaries

Life changes, so should your trust. You’d be amazed at how many people neglect to review and update their beneficiaries. Update your trust as your life changes.

DIY Trusts

Trust law is complex, state-specific, and is constantly changing. Generic do-it-yourself online forms might be cheaper, but they will almost always cause you more problems down the road. Don’t go this route.

Ignoring Tax Implications

Trust structures all have different tax implications. What may work for your neighbor will most likely not work for you. Make sure to account for taxes when deciding what trust structures to use.

Wrapping It Up

Trusts are not some legal mumbo-jumbo reserved only for the ultra-wealthy. Trusts are practical tools used to solve very real problems for families like yours and mine.

Whether you want to avoid probate, protect your assets from creditors, minimize taxes, or have a plan in place to care for your loved ones properly — trusts can help you achieve all of these goals and more.

The longer you wait, the fewer options you have. Estate planning is one of those things that is so easy to put off. Everyone means to get around to it eventually but eventually has a way of turning into never.

Your family’s financial security is at stake. Make the right decision.