Trusts have an unfairly negative reputation. People often associate them with the incredibly wealthy and with privileged adult children who have never worked a job. However, trusts are actually incredibly useful for many people planning their estates.
Both high-income individuals and middle-class families could benefit from adding a trust to an estate plan. What are some of the reasons that people decide they need to create a trust?
They worry about estate taxes
The total value of your property when you die determines whether or not a portion of your remaining assets must go toward estate taxes. If someone’s estate is worth millions of dollars, a trust can be a way to diminish the property in their name and reduce or eliminate state taxes.
They may require Medicaid later
Qualifying for Medicaid as you age isn’t easy, and many people may wind up forced to pay a penalty when they can least afford to do so. Creating a trust at least five years before you need to apply for Medicaid will reduce the likelihood of a penalty when you apply and will also protect assets like your home from estate recovery efforts after you die.
They have family conflicts
Maybe the person creating the trust has two children who have always fought with one another. Perhaps their spouse has had a long history of substance abuse issues. People can add trust to their estate plans when they worry about the conflict between their family members or a loved one misusing their inheritance.
Recognizing how useful a trust might be could inspire you to add one to your estate plan.