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Why even those with modest means may want to set up trust funds

When most people hear the words “trust fund,” they probably think that the idea of putting money away for those down the line doesn’t apply to them because they’re not particularly wealthy. That assumption can only rise out of a misunderstanding of what, precisely, a trust fund is.

It’s a tool a person can use to designate how they want their money to be handled once they’ve passed on. Even if you’re not particularly wealthy, you might find it appealing to create a trust to ensure that your finances are ultimately handled in accordance with your wishes.

If you’ve built up some savings and you want to ensure that they go to a good cause or that they’re handled responsibly, setting up a trust fund might be right for you. Many individuals turn to trusts in lieu of gifting a lump-sum to their loved ones. Others look to them as a way of distributing their savings across multiple generations.

Setting up a living irrevocable trust can help you do all of that. It can be set up where funds only get dispersed when certain milestones are achieved. It can even be created to allocate these funds to specific causes or individuals while you’re still living.

Assets that you place into the trust don’t have to be cold, hard cash either. They can include real estate or stocks, as well.

When setting up your irrevocable trust, it’s important to think long and hard about who’s going to benefit from it and at what intervals. That’s because, as the “irrevocable” aspect of the name suggests, you no longer have rights to the assets you place into it. Only the trust’s trustee can make modifications in the future.

As financially savvy individuals age, they often set up trusts as a way to reduce their annual tax burden. No longer being listed as the owner on record for these assets means you don’t have to pay any further taxes on them. Wealthy individuals often divest themselves of assets and place them in a trust so that they can qualify for a lower tax bracket.

If you’re considering setting up an irrevocable trust, you may find discussing the pros and cons of doing so with a Maricopa, Arizona, estate planning attorney to be particularly helpful.

Source: Investopedia, “How to set up a trust fund if you’re not rich,” Tim Parker, accessed Aug. 04, 2017


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