When it comes to trusts, there is a misconception that if you do not have one you do not have an estate plan. Everybody has an estate plan. Whether they choose beneficiaries or draft documents as part of that estate plan is another matter entirely.
For those that don’t, their assets will simply go through probate, which is a process where you allow the government to choose how your assets are distributed after your death. The reason why people choose to draft wills or trusts to avoid probate is because the probate process can be time-consuming, tax-inefficient, and ultimately it can create conflict and uncertainty when your assets are being distributed.
If I had to simplify the purpose of trusts down to a single benefit, it would be the ability to better control your assets after your death. This increased control takes on many forms, including an individual’s ability to:
- Control when assets are distributed
- Protect beneficiaries
- Plan for incapacity
- Reduce estate taxes
- Establish a plan for guardianship
- Address complex family situations
Over the course of this article, we’ll explore both a few reasons to implement a trust and play devil’s advocate to show that a trust is not always going to be a perfect fit for each individual.
Three Reasons to Use a Trust
1. Control When Assets are Distributed
Many people spend a lifetime building up their wealth; moreover, some view their wealth as the representation of their hard work and commitment to their vocation across several decades. Because of this, they do not want to see it get spent immediately after they pass. Two quick examples of how trusts can help you address this concern:
Example A: The Spendthrift Spouse
It is common in relationships for one individual to be the “financially responsible” spouse and another one to be the “live for today” spouse. The first type is usually concerned that the latter type will spend all of their hard-earned wealth if an unforeseen death occurs. This concern gets elevated when you have children that you’d like to take care of after the surviving spouse passes. Certain trusts allow you to set things up so that your surviving spouse only has access to income generated from the trust and expenses that meet their health and quality of life needs.
Example B: Young Children with a Big Inheritance
Many parents trust their children implicitly, but many of those same parents recognize that they were not financially savvy when they entered their early 20s. It is not uncommon to think that your children may be similar to you, and it would be comforting to know that you can put guardrails around your wealth to help mitigate these concerns. Again, a trust can be a great tool to use in this scenario because it allows you to grant access to an inheritance over time. Commonly, I’ll see wealthy families structure trusts to pass a third of their inheritance to young children at 25, 30, and 35.
2. Reducing Estate Taxes
Wealthy families find themselves facing the reality that they may owe the government money after they pass in the form of the estate tax. This can apply at both the federal level and state level (depending on the state you live in). However, this can be combated through a well-thought-out estate plan. Creation and funding of certain trusts (particularly irrevocable trusts) can allow families to carve out a portion of their estate now into a trust and remove it from their estate. Even if that trust grows 10x by the time you pass away, the growth may not be included as part of your taxable estate which can save you significant estate taxes.
Types of Trusts Used to Reduce Estate Taxes:
- GRATs
- QPRTs
- CRTs / CLTs
- IDGTs
- ILITs
3. Addressing Complex Family Situations
Each of these situations adds complexity to the handling of your estate:
- Divorce and remarriage
- Children from two different marriages or blended families
- Parents to special needs children
Whenever there is an increase in the complexity of family dynamics, there is an increased chance that there will be conflict if your estate is handled through the probate process. An ex-spouse is likely to challenge your current spouse’s rights to inherit your assets, your biological children will probably feel entitled to a larger portion of your estate, and siblings will probably not agree on who should be in charge of their special needs sibling’s affairs.
A trust can be a great way for you to address these more complex situations and eliminate someone’s ability to challenge those wishes in court.
Real Client Example: I have a client that has four children, one of whom is a special needs child. This client has done diligent planning for herself and had a revocable trust written that listed the four children as beneficiaries of her sizable estate.
However, as mentioned above, complex situations require additional planning. In this case, my client had to go the extra mile and have a Special Needs Trust created and listed as the beneficiary of her trust instead of her child directly.
This type of trust allowed her to protect the assets going into the trust, lay out how the child would be cared for, and keep the government benefits of the child intact upon her death.
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Three Reasons When a Trust Might Not Be Right For You
1. You Already Have Beneficiaries Listed on All Your Assets
Writing a trust is not the only way to ensure that your assets are distributed to the proper beneficiaries. Many accounts and assets have separate beneficiary forms you can fill out to list your beneficiaries as you wish. For example, IRAs, 401(k)s, and life insurance policies have their own beneficiary forms that determine who your beneficiaries are for those assets even if you do have a trust. Taxable investment accounts and bank accounts allow you to attach Transfer-On-Death (TOD) or Payable-On-Death (POD) designations which will accomplish a similar purpose to the trust. You can even create TOD deeds for your real estate to determine how those properties are passed on after your death.
Essentially, you can piecemeal these designations together over time without needing to put a formal trust document together. However, this is typically more time-consuming and requires more attention to detail. The key is to make sure you have addressed all applicable assets and that you have appropriately attached the designation forms to them before you pass.
2. You Don’t Want to Incur the Cost of a Trust
Unless you draft the document yourself, trusts are not free to put in place. Depending on the state you live in, it could cost you several thousand dollars to have a trust written. For those that have not accumulated much in assets yet, there is a reasonable hesitation to implement a trust because the cost of a trust could make up a small percentage of the overall estate itself. Also, as stated above, there are alternative ways to put together your estate plan that do not require a trust to be implemented. Those that have put together beneficiary forms, a simple will, and power of attorneys (POAs) on their own may find that the creation of a trust is not a worthwhile expense.
Thankfully, this issue of cost has become less of a problem over the last 10 years. The existence of online estate planning solutions have allowed individuals to create new wills and trusts at a much lower cost than the traditional route of retaining an attorney for the same purpose. Additionally, I would advise that you do not let the short-term cost of a trust dismantle your long-term plan if it prevents you from properly protecting your wealth.
3. Your Situation Is Very Straightforward
Personal Story: A lot of articles will tell you that you should really put together a trust at any age because it’s going to be a good long-term decision. However, I’m not going to do that here. I think of myself when I was single with no children, renting an apartment in Chicago, and no real assets in my name besides my car and a small amount of money in my bank account. I did not have a trust at that time, and I don’t think it was a terrible decision. My likelihood of passing was very remote, and I did not know what my life was going to look like 10 years from that point.
I’m sure this resonates with many people who are reading this. You should not feel like you should have a trust created just to say you did it. If your life is not complex and you anticipate that your estate will be straightforward to handle if something happens to you, making the judgment call to forego a trust will not be the end of the world. Just make sure that you review this decision as your life changes.
Trust Decision Summary Table
| Scenario / Consideration | When You Should Use a Trust | When You Shouldn’t Use a Trust |
|---|---|---|
| Avoiding Probate | You want to bypass probate and keep your estate private | You’re fine with probate and want a simpler, less expensive setup |
| Managing Assets for Minor Children | You want to control how and when children receive assets | You have no dependents or trust them to manage a lump-sum inheritance |
| Protecting Beneficiaries | You want to shield assets from creditors, lawsuits, or divorcing spouses | You trust your beneficiaries to manage assets responsibly |
| Incapacity Planning | You want someone to seamlessly manage assets if you’re incapacitated | You already have powers of attorney and minimal assets |
| Estate Tax Reduction | Your estate is near or over the $13.6M (2025) estate tax exemption | Your estate is well below the federal estate tax threshold |
| Owning Property in Multiple States | You want to avoid multiple probate processes across different states | All your assets are in one state and easily transferred |
| Blended Family / Complex Inheritance | You want to control distribution among stepchildren or former spouses | You have a simple family structure and clear, uncontested beneficiaries |
| Special Needs Planning | You have a dependent who relies on government benefits and need to preserve them | You don’t have dependents with special needs |
Work with a Financial Advisor to Help with Generational Planning
Sometimes, it can be difficult to trust attorneys to remain objective when asking them if you need a trust or not. That is why our team of generational wealth advisors are familiar with our clients’ needs and can help talk you through the pros and cons of implementing a trust for your situation.
We’ve established strong referral sources and have partnered with Wealth.com to help create a seamless experience where our clients can create estate planning documents with our team’s guidance.
By cutting down on the time and expense of the traditional process, we’ve found that people are much more open to creating a trust in order to protect their family’s long-term plan.
