Trusts get talked about a lot, but rarely explained well. In the video below, our advisor Jack Tinari breaks down who actually needs one, who doesn't, and the most common mistakes people make when they skip this conversation.
When most people hear “trust,” they picture something reserved for the ultra-wealthy. That's one of the biggest misconceptions in estate planning. A trust isn't about how much you have. It's about how your family is protected and your wishes carried out when you're no longer able to decide for yourself.
The honest answer to “do I need a trust?” is: it depends. A trust that makes sense for one family may be unnecessary, or counterproductive, for another.
Signs a trust might make sense for you
- You own real estate in more than one state, which without a trust could mean probate in each one.
- You have minor children and want control over how and when they receive assets, instead of a lump sum at 18.
- You're in a blended family and want to protect a spouse while still directing assets to children from a prior marriage.
- You value privacy. Wills go through probate and become public record; trusts generally do not.
- You want to plan for incapacity by naming someone to manage your assets immediately if you become unable to.
- You have a special needs family member and want to provide for them without disqualifying them from government benefits.
- You own a business and want it to keep running smoothly if something happens to you.
- You worry about nursing home costs. A Medicaid planning trust, set up early enough, can shield a home and savings while still qualifying for long-term care assistance.
- You want an inheritance to stay in the family. A trust can pass assets to your child while keeping them out of reach of a son-in-law or daughter-in-law in a divorce.
Reasons a trust may not be the right move
- Cost and upkeep. Trusts cost more than a will, and irrevocable trusts often need their own annual tax return.
- Loss of control. Irrevocable trusts generally can't be undone; you give up direct ownership of what goes in.
- Retitling work. A trust only covers what's actually placed inside it. Forgetting to retitle an account defeats the purpose.
- Tax outcomes aren't automatic. A trust doesn't inherently lower your taxes. Irrevocable trusts hit the top income tax bracket at a low threshold, and benefits only apply to specific trust types used correctly.
- Not needed for smaller, simple estates. If assets are modest, held jointly, or pass by beneficiary designation, a will may accomplish the same thing for far less cost.
A quick briefing on the main types
- Revocable Living Trust. You control it while alive, it avoids probate, and you can change it anytime. No income tax benefit while living; taxed as the owner.
- Irrevocable Trust. Can't be changed once established. Used for asset protection or reducing taxable estate size, but retained income is taxed at compressed trust brackets.
- Testamentary Trust. Created through your will, activated at death, often used to manage assets for minor children.
- Special Needs Trust. Provides for a disabled family member without jeopardizing benefit eligibility.
- Irrevocable Life Insurance Trust (ILIT). Holds a life insurance policy outside your taxable estate, keeping the payout free of estate tax.
- Medicaid Asset Protection Trust. Shields a home and savings from nursing home costs if set up well ahead of needing care (states impose a look-back period, often five years).
- Trust with inheritance protections. Holds a child's inheritance for their benefit alone rather than as an outright gift, so it isn't automatically treated as marital property in a divorce.
Why this isn't a do-it-yourself decision
The right structure, if any, depends on your family, assets, state, and goals, and how those interact with your tax picture. A trust set up in isolation can create more problems than it solves.
Your next step
If you're not sure whether a trust applies to your situation, call us. We'll take your full financial picture into account, including the tax impact, and give you a straight answer on whether a trust makes sense and which type fits.
