Using Trusts in Your Estate Plan Largely Depends on Your Intent

We often tease, “the last check you write should bounce!” meaning you have perfectly planned your assets to deplete at the end of your life. However, this is rarely a reality. Most investors die with assets still invested and with property in their name. Part of the planning process is asking what happens to your wealth once you pass. Usually, the intent is for wealth to pass to children, grandchildren, and often charities.

With the incredibly generous estate exemptions—$12.6 million per person and $24.12 million per married couple—most investors do not believe they have an estate tax problem. They’re right. According to IRS data, they likely don’t have an estate tax since just 0.2% of citizens who die have owed estate tax in recent years. That doesn’t mean the average family doesn’t have an estate plan problem. Furthermore, with estate tax laws subject to change in 2025, flexible planning now is advantageous.

If you’re leaving any sizeable estate, you can control how your heirs receive and even spend the inheritance using trusts. These popular estate planning vehicles can be used to minimize estate taxes, shield assets from creditors, avoid probate, preserve assets for minor children, and create an income stream for heirs or charities, to name a few. The trust is an entity that holds property and assets for the benefit of the named beneficiary. The terms of the trust can also dictate how and when the beneficiary receives or spends the assets. The downside is that trusts have expenses, as an estate planning attorney must prepare them, they may require trustee fees, and income generated by the trust may be taxed at a higher rate than the beneficiary’s standard income tax rate.

Most trusts fall into one of these categories: revocable, irrevocable, and testamentary. Revocable trusts, also known as living trusts, are created while you are alive, and you maintain control of the property placed in the trust. Revocable trusts also allow you to adjust the terms and dissolve them. Irrevocable trusts cannot be changed or dissolved but may offer better creditor protection and more protection from estate taxes. Testamentary trusts are created by your will when you die; however, they only come into existence after your will is probated, so these trusts cannot avoid the probate process.

Ultimately, trusts are planning tools that allow you to control your assets once you are gone. How you design it depends on your intentions for your money. You can use your trust to incentivize your heirs to meet certain requirements to receive trust assets, such as requiring heirs to earn a college degree. You may restrict access to your assets until your heirs reach a certain age—and hopefully maturity—before they have control of their inheritance. Most often this is used for minor children but could be appropriate for adults with poor spending habits. You can also use a trust to protect and manage your assets should you become incapacitated, thus eliminating the courts from appointing a guardian to manage your property.

If you have questions on how a trust would help you achieve your wishes for your wealth once you’re gone, the experts at Henssler Financial will be glad to help: