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Trusts

WHEN FOLKS HEAR that someone has set up a trust or is the beneficiary of a trust, one thought often comes to mind: We’re talking about serious money. In the lexicon of wealth, the term “trust” is as evocative as “hedge fund,” “private equity” and “overseas bank account.”

In truth, a trust is just an estate planning tool, one that sometimes makes sense even for families with relatively limited wealth. Why would you use this tool? There are four reasons:

  • Assets held in a trust can avoid probate. This is the reason some people set up revocable living trusts.
  • A trust can allow you to control how the assets you bequeath are used after your death. For instance, folks will often use trusts when leaving money to children, including those with special needs, or to family members who are financially irresponsible. They might also use trusts if they’re remarried and trying to provide for both a new spouse and children from an earlier marriage.
  • Trusts can help if you fear you might be subject to estate taxes. Two popular tax-cutting strategies include using bypass trusts and setting up irrevocable life insurance trusts.
  • For those worried about lawsuits, trusts can help with asset protection.

Depending on the type of trust, hefty costs can be involved. This shouldn’t be an issue with, say, a revocable living trust used simply to avoid probate. But let’s say you bequeath money to your children in a trust. The trust could pay substantial annual fees for administration and money management, and also need to file its own tax return.

Next: Living Trusts

Previous: What to Bequeath

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