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10 Reasons To Set up a Trust Even if You’re Not Wealthy

Trusts are a valuable tool for everyone, not just the super-rich.

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Updated Sept. 25, 2024
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When you think of a trust, you might immediately conjure images of the super-rich squirreling away their assets.

While wealthy people sometimes use trusts, the reality is that this tool is a wealth move for many savvy individuals.

Let’s explore some of the advantages of setting up a trust.

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Revocable and irrevocable trusts

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There are two types of trusts: revocable or irrevocable.

A revocable trust, or living trust, is a legal document that governs the disposition of your assets. The terms are flexible and the trustee (you or someone you designate) can change the terms whenever you want.

When you die, the successor trustee takes over and distributes your assets according to your wishes set down in the trust.

An irrevocable trust is in force once it has been signed, and the terms cannot be changed without court intervention or agreement of all beneficiaries. The benefit of an irrevocable trust is that assets in the trust are protected from creditors.

Avoid probate

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The assets set to be distributed through you will typically have to go through the probate process, which is often a long and expensive process. In contrast, assets in a trust usually skip the probate process, which could save your heirs a significant amount of time and money.

If you establish a trust during your lifetime, only your attorney and the trustee (most likely the person who creates the trust) will have knowledge of the agreement.

After your death, the trustee or successor trustee will likely gain access to the assets without going through the hassle of probate.

Customizes your estate plan

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Setting up a trust gives you an additional level of control over your estate plan and assets after your death. With the help of a lawyer, you can use a trust to set rules on how and when an heir may access the funds.

For example, you might set specific age milestones when your heirs may access the funds. Or you might make graduating college a condition for receiving the inheritance.

Alternatively, you might limit how much someone can withdraw from the trust each year as a way to protect your heirs who have a difficult time managing their own funds. The possibilities for customized planning conditions are endless.

With a trust, you can set things up in a way that makes sense for your unique situation. This level of control is typically not possible through a will.

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May avoid taxes

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If you opt for an irrevocable trust, which doesn’t allow for any changes after its creation, you might enjoy certain tax benefits.

In some cases, the assets placed in an irrevocable trust are protected from estate taxes after your death. Depending on your situation, this could lead to significant savings for your heirs.

Make sure to consult a tax professional about the estate tax rules in your state to avoid any oversights.

Privacy

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When you die, your will becomes part of the public record. Since it’s a public record, your last wishes are available for anyone to read. For families who prefer to keep their assets private, a trust offers a vital way to protect your sensitive details from the prying eyes of the world.

Shield assets

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If your heirs are in a line of work with a high risk of litigation (contractors, lawyers, doctors, for example), placing their inheritance in a trust could protect it from lawsuits. An additional level of protection can go a long way for your family.

Receive assistance during your lifetime

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If you set up a revocable trust, it offers a way for your family to help manage your assets during your lifetime.

For example, if you are ill or disabled in an accident, your trustee can take over paying your bills and make decisions about your assets for you.

Although it’s uncomfortable to think about this possibility, choosing a person you have confidence in as a trustee can help you during an already difficult situation.

Flexible arrangements

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When you set up a revocable trust, you can amend the document at any time to change the terms of the agreement.

Since life changes can happen, the flexibility of a revocable trust gives you the freedom to make changes throughout your lifetime.

Charitable options

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If you plan to support your philanthropic interests after your death, a charitable trust can be a useful tool. Within your trust, you might choose to write in a specific direction to send a certain amount of money to your favorite charity each year.

This offers a way to continue supporting your charitable efforts for many years to come.

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Built-in investment guidance

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If you don’t trust your heirs to manage the funds on their own, you can designate a professional money manager. The money manager would be in charge of keeping the trust afloat and making payments to the heirs based on your wishes.

Of course, you’ll pay extra to appoint a money manager for the trust. But it could be worth it if you want to safeguard your assets for your family to enjoy for the long term.

Bottom line

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A trust is a useful legal tool that anyone with assets can make use of. You don’t need to be super-wealthy to create a trust.

If you have made solid financial plans and are managing your money wisely, you probably want to pass something along to your heirs. It may be worthwhile to talk to a financial planner or a trust and estate attorney to discuss the merits of a trust for your assets.

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Author Details

Sarah Sharkey

Sarah Sharkey is a personal finance writer who enjoys diving into the details to help readers make more informed decisions. She covers mortgages, insurance, money management, travel, and more.