When it comes to estate planning, a will is often the first step. However, wills may not be the best option for everyone, which is why many individuals, families and business owners can benefit from establishing a trust. Contrary to popular belief, trusts are not just for the wealthy; they can be useful for people of any age or net worth. A trust is a legal agreement that ensures a person's assets eventually go to specific beneficiaries.
The trust creator places their assets in the trust's name and authorizes a third party to manage them for the trust creator and beneficiaries. A well-crafted trust can save time and paperwork when liquidating an estate, and in some cases, reduce the amount of estate taxes that beneficiaries have to pay when they inherit assets. Although trusts may be a low-cost option, they may require extra paperwork during tax season and careful management of the trust's investments in order to preserve and grow trust assets. Your net worth may not have to be as significant if you appoint a person as a trustee, or if you form a revocable trust and act as your own trustee.
Therefore, if you want your assets to pass to your heirs quickly, specifically and privately, it is worth considering a trust. For married couples with substantial net worth, a credit shelter trust (CST) can help them or their heirs avoid estate taxes. The best way to determine the minimum net worth you should have to benefit from a living trust is to review the laws of your state regarding small estates. If you need a revocable living trust, make sure you deposit your assets into your trust and update your beneficiary designations; otherwise, your trust will not be worth much less than the money you spent on it.
The minimum net worth necessary for a single person to consider using a revocable living trust will vary from state to state. You may be able to benefit from a living trust even if your net worth doesn't qualify you as prosperous. Regardless of your net worth, and particularly if any of your assets are titled in your exclusive name, you should consider the possibility of a revocable living trust if you provide for the need to plan for possible mental disability. Trusts can be useful estate planning tools for many people, but they may not be worth the expense for those who don't have many assets. Estate planning can be difficult and very challenging, especially if you are a high net worth individual (HNWI).
Each state determines the net worth that can be passed on to its beneficiaries by an affidavit rather than being handled by a probate court. Trusts are often mistakenly associated with people who might have higher net worth, but trusts aren't just for rich people. Living trusts aren't beneficial or necessary for everyone, but they have certain uses that can make it worthwhile to have one. For example, I retired a few years ago and have a will and power of attorney, a reasonably good net worth, mutual funds, annuities, cash, a house without a mortgage and a long-term health policy. Your individual net worth is an important consideration when deciding whether or not to create a living trust; this is especially true if you want to hire a corporate trustee such as a bank, trust company or investment firm.