5 Benefits of Creating a Trust to Manage Wealth

Trusts offer a way to protect your assets and leave a legacy, while also avoiding the costs of probate. Probate is the legal method of estate administration where a decedent’s estate and assets are delegated according to their last will and testament.    The cost of the probate process is set by statute and it can be tens of thousands of dollars.  Probate can be time consuming, and the process is not private. To avoid this expense and to ensure that your loved ones have financial privacy when inheriting your estate assets, you may benefit from a trust.

What Is Included in a Trust?

A trust can include almost any asset, ranging from real estate or life insurance, to collectibles or investments. Trusts vary in their complexity, purpose, and benefits. Revocable trusts have different requirements than irrevocable trusts, and life insurance trusts have different objectives than land trusts.  Trusts are usually customized by a lawyer to earmark certain assets or income for designated beneficiaries who are named within the trust.   Revocable trusts for individuals generally leave assets in trust for a surviving spouse, if any, and then distribute those assets to children or grandchildren who are lineal descendants when the surviving spouse dies.  

Every trust has a designated trustee.  The trustee is the person or corporate trust company you, as the trust’s grantor, have designated to be in charge of your trust assets.  This trustee has a fiduciary duty to manage your trust assets responsibly.

How Can You Avoid Probate Fees?

Trust rules and probate expenses vary by state.  States offer various ways to avoid probate fees. For example, in Florida, you can avoid probate if you add beneficiaries to your existing bank and investment accounts using specific forms such as payable on death (POD) or transfer on death (TOD) forms.  Upon someone’s death, the beneficiary named on the account simply has to provide the financial institution with a death certificate and valid ID to access the funds in the account. Some states also allow beneficiary designations on car titles and real estate deeds.  Even though you can avoid probate by designating a beneficiary, there are still reasons to consider using a trust. 

5 Benefits of Creating a Trust

Trusts offer a variety of benefits including protecting your assets from lawsuits and probate fees. Here are five important benefits from having a trust.

1. Protection and Privacy:  A trust can protect your assets from lawsuits, as well as probate fees. Asset protection is especially important for business owners who are in litigious professions, such as doctors, lawyers, and general contractors.  Without a trust, a person’s estate goes through probate, where the public is allowed to see the will and assets. However, when assets are in a trust, they are shielded from public scrutiny and prying eyes.  Trust assets are also off limits from creditors.  Families have found that by clearly designating beneficiaries through a carefully written trust, they can prevent fighting and lawsuits between heirs.

2. Taxes:  Trusts of varying types offer different tax protections. For example, a life insurance trust can protect life insurance death benefits from any estate taxes.  A trust fund for a child can be set up to receive annual tax-free gifts, up to the maximum amount that is exempt from filing a gift tax return. In 2019, this gift is $15,000 per donor for any recipient. To determine the best most tax efficient way to allocate your funds the investments in a trust, it is advisable to talk with a trust or tax specialist.

Revocable living trusts designate a trustee to manage and control the property of the grantor. These are popular today because they offer management and provisions like credit shelter where estate taxes can be reduced. Additional tax benefits include savings from reducing transfer taxes and the size of the estate with charitable contributions.

3. Flexibility:  Trusts offer ways to provide for beneficiaries in different ways. Families often place age restrictions on when trust assets may be inherited.  The philosophy behind this approach is to hold assets until the beneficiary has more life experience and a greater appreciation for how to handle money.   In families where there may be a history of addiction, there can be special trust provisions to withhold distributions if there is evidence of current substance abuse. While trusts are flexible, they are not arbitrary in how they are administered by professional trustees. Trusts frequently state that principal can be withdrawn from the trust based on the “HEMS” standard, which means for “Health, Education, Maintenance, or Support.

4. Prudent Investment Strategy:  The trustee has a fiduciary responsibility to oversee the management of trust assets prudently, as expressed through regulation such as the Uniform Prudent Investor Act.   This includes following a disciplined, balanced investment process, and conducting regular assessments of investment income, risk, return and diversification.  It is common for trusts to name a family member as a trustee, but one should remember that individuals may lack the professional skills of a corporate trustee.  Families with complex needs are wise to carefully consider hiring a trust company as their trustee.

5. Legacy:  Having a trust offers you the trust grantor a specific way to leave their assets as a legacy for the people and organizations they hold dear in today’s era of billionaires, it is tempting to think that one must be Bill Gates or Warren Buffet to think about one’s legacy. Yet, each and every person has a legacy of some kind.  Some are primarily financial legacies and others are primarily legacies of principals and beliefs. 

Setting Up a Trust

To set up a trust, it is important to meet with a qualified attorney in your home state who is knowledgeable regarding estate planning. Choose an estate planning attorney who has sufficient experience, and who will collaborate with your investment advisor to retitle your assets into the trust. 

Typically, when you execute a trust, you will still need a ‘pour-over’ will to aggregate items that were accidentally left out of the trust.   If your estate lawyer is typical, he or she will want you to execute a durable power of attorney, a living will, and a health care surrogate document as part of your overall estate plan.  The role of these documents will be covered in future blog article.

You will also need to periodically revisit this plan as your goals or assets may change, as well as to check if there any changes in the law that can affect your distributions. With a trust, will and designated trustee, you can enjoy the peace of mind of good financial planning and taking proactive measures to protect your loved ones.


IMPORTANT INFORMATION: Craig Price, CFP, CTFA, is an Investment Advisor Representative associated with Naples Wealth Planning, LLC (NWP), an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). The content is the opinion of Craig Price, and may not necessarily agree with the investment adviser Naples Wealth Planning.
This material is provided for informational purposes only. Information is not intended to be and should not be construed as an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice and no investor should rely upon or make any investment decisions based solely upon contents of this material. Current or prospective clients should under no circumstances rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. Please keep in mind investing involves varying degrees of risk, and there can be no assurance that future performance of any specific investment or investment strategy will be profitable and you may gain or lose money. Past performance is not indicative of future results.
Capital Rock Financial, LLC d/b/a Naples Wealth Planning (“NWP”) only transacts business in states where it is properly registered or in compliance with applicable state regulations. NWP is a registered investment adviser with the U.S. Securities and Exchange Commission (“SEC”). NWP’s services should be considered in connection with its written disclosure brochure (i.e., Form ADV Part 2A), a copy of which is available for free by calling (239) 260-9386 or Email info@napleswealthplanning.com

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