A common question I’m asked is whether trusts are worth the cost, and if so, whether one is actually necessary. The most honest answer is: it depends. Every situation is different, which is why it’s important to speak with a financial professional before considering this type of estate planning strategy.
With that said, there are certain situations where a trust can be a very effective tool. Today, I want to share a brief overview of what a trust is and some of the benefits it can provide to everyday people.
In layman’s terms, a trust is like a lockbox that holds money or property and comes with a set of instructions for how those assets can be used. You decide what goes into the trust, who it’s for, and who is responsible for managing it. Those instructions can specify when money is distributed, how much is given, and for what purpose.
In other words, a trust allows you to maintain control over your assets and ensure they are handled according to your wishes, both during your lifetime and after you’re gone. Because of this, the language used in a trust document is critically important, and it’s essential to work with a qualified legal professional when setting one up.
Trusts are most commonly used by seniors who have retired and have accumulated a significant estate. One key benefit is the ability to seamlessly transition asset management to someone else in the event of incapacity, while also maintaining control over how assets are distributed after death, all while avoiding the probate process.
However, trusts are not just for seniors. Individuals with more complex family situations may also benefit from one. This can include blended families, second marriages, children from prior relationships, beneficiaries with disabilities, or situations where assets may need protection from divorce or other legal claims.
Another important, but often overlooked, use of trusts is in long-term care planning. When couples face serious illness later in life, one of the biggest challenges they can face is the risk that healthcare expenses might financially devastate the household, leaving the healthy spouse with little or nothing to live on.
Medicaid can help cover these costs, but qualifying comes with strict rules. When someone applies for Medicaid, the state reviews all financial transfers made in the previous five years. If assets were given away or moved into certain trusts during that period, benefits may be delayed or denied.
However, when done properly and well in advance, trusts can help balance the need to qualify for care, while also preserving dignity and financial stability for the spouse and family left behind.
Like any financial tool, a trust is most effective when it serves a clear purpose and fits within a coordinated plan. When the right trust is put in place at the right time, it can replace uncertainty with clarity, helping ensure that both your financial goals and the people who matter most are protected.
(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)