And Do You Need One?

Have you ever referred to someone as a trust fund baby or better yet, a trustafarian? Is your knowledge of a trust limited to the basic thought that you wish you had one? If so, please continue.

While it would be unfair to say everybody needs a trust fund, it’s probably a good idea for most people to have one.

What Is a Living Trust?

Also called inter vivos trusts (inter vivos is Latin for “between the living”), a living trust is the most common form of a trust. It is put in place when you transfer the title (ownership) of a portion of your assets (i.e. home, cash, stocks, art) into a trust. You then appoint a person, typically someone you trust, to look after these assets.

An Example of a Trust:

You decide to establish a trust with $500,000 of your assets. You do two things:

1. You transfer the title of these assets to the trust.

2. You then ask your best friend Fiona to look after these assets. She is called the trustee and is legally responsible for these assets.

The assets, once in a trust, belong to neither you nor Fiona. The assets belong to the trust. Ultimately, the trust will give the assets to someone else. That someone else is a third party who can be children, friends, the friendly Starbucks barista… anyone you would like to give your assets to. This person is called the beneficiary.

This sounds like a really complicated version of a basic will. Why do it?

1. Cost – Your assets avoid probate costs when you die. Probate is the process by which your property gets transferred from you to the people who you designate in your will. The typical probate cost is between 3%-7% of your estate. This is avoided with a trust.

2. Privacy – If you let your estate go through probate, it becomes public record. If you want to keep your family’s wealth out of the public eye, use a trust.

3. Rules – You can put rules on the trust. You can determine who has access to the funds and if certain conditions need to be met before they get the funds.

4. Cash Flow – You can be paid income off your trust during your lifetime.

5. Be Your Own Trustee – You can be your own trustee if you don’t want to appoint anyone else. Upon your death, responsibility would pass to a successor trustee.

6. Your Child’s Spouse is a Gold Digger – If you give your children assets outright, they become marital property. If you give your child assets in a trust, your child is the only owner of the assets. So if you think your son is dating a gold digger, throw his inheritance into a trust now.

7. Creditor Protection – Since trusts are not held in your name, they can protect you from creditors.

P.S. Most attorneys typically charge between $800 and $2,500 to establish a trust. However, it can be more if your needs are quite complex.