Minneapolis/St. Paul Business Journal: Think you don’t need a trust? Five reasons you may be wrong

Trusts can help families gain greater financial clarity, protection, and privacy while supporting and complementing tax planning and charitable giving strategies. Sharon Olson explores with readers five reasons creating a trust could be a smart move for you and your family in her recent article in the Minneapolis/St. Paul Business Journal.

When many people hear the term “trust,” they assume it is a tool that only the very wealthy have access to. In other words, it’s not for them. More often than not, that assumption is wrong. Below are five reasons why creating a trust could be a smart move for you and your family.

1. Greater clarity for you and your family

Life is often uncertain, to say the least. If you were to unexpectedly die or become incapacitated, a trust can serve as a guiding document for what you want to happen with your assets, as well as any dependents. A trust document controls who receives what assets, as well as when those distributions occur. It can also help protect against interfamily disputes caused by family members having to decide among themselves how to distribute assets. This can be especially important for blended families and families with multiple marriages.

2. Protection from creditors

A trust can protect your assets from your beneficiary’s creditors. It can also protect the beneficiaries “from themselves” by dictating how and when the assets will be distributed, as well as protection against claims made by hopeful beneficiaries.

3. Privacy for you and your beneficiaries

There are two forms of privacy a trust can provide. First, if a trust has a name that is not identifiable with you or your assets (e.g., your house), that can prevent it from being associated with you in public records. This can be beneficial for individuals who work in public-facing professions. The second potential privacy benefit is, depending on where you live, some states require a process called probate, in which the state settles your affairs after death. This process can be time-consuming, expensive in some cases, and the records will be visible to the public. If all your assets are placed within a trust, you can avoid probate and settle the estate according to the trust terms.

4. An effective tax planning tool

You may think you do not have enough assets to worry about estate taxes, but laws and life circumstances often change. A trust can be written to protect your beneficiaries from paying excessive estate taxes, either through charitable giving, additional trust funding and/or other estate planning strategies. Establishing a trust with the appropriate language can ensure your family will be taken care of in the event you receive a large inheritance, your career heads in a different (and more lucrative) direction than originally anticipated or laws change. One legislative change on the horizon is that the federal estate tax exemption is set to decrease from roughly $12 million to $5 million per person in 2026. Setting up or updating a trust now can help plan for that eventuality.

5. Not as expensive as you might think

Many individuals believe that creating a trust is more expensive than it is. It may cost several thousand dollars or more, depending on the complexity of your estate. In contrast, this is the same amount that it costs to go through probate in many states if you do not have a trust. The result is the same expense for administrative purposes, but you forgo all of the trust benefits mentioned above.

In conclusion, a trust is not as intimidating as one may think and can be a useful, cost-effective tool for many of us.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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