Understanding Trusts Part 2: What’s the Cost and Are They Worth It?

Understanding Trusts Part 2: What’s the Cost and Are They Worth It?

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One of the reasons understanding trusts is so confusing, is that people often assume they can’t afford one. Trusts are associated with wealth because of their relative cost compared to a traditional will, which, depending on the complexity of your estate, can often be drawn up for only a few hundred dollars.

A trust, on the other hand, can run between $1,600 and $3,000, or even higher if your estate plan is more complex. The trust may also be subject to amendment fees, or a variety of settlement fees to administer the trust after the settlor dies.

However, these expenses could be worth it in order to obtain the unique protection benefits and tax savings you can get from a trust.

Even with all of these fees accounted for, the total expense is often less than settling an estate through probate court, which can cost as much as 8% of the total estate value.

How Long Does a Trust Take?

Setting up a trust may take anywhere from a few weeks to a few months after your consultation in order to prepare your documents and go over everything to ensure it’s exactly as you want.

It depends on your ability to make tough decisions about which family member or financial institutions might be in charge when you’re gone, and how much money to give your kids and the charities you care about.

As far as how long a trust will take to settle after the trustor’s death — in part, that’s up to the trustor to decide. The ability to dictate exactly when and how your wishes are carried out is one of the most attractive benefits of creating a trust in the first place!

What Protections Does a Trust Offer?

Because it essentially transfers the ownership of the assets out of your hands, an irrevocable trust can protect those assets from lawsuits and creditors — even if you name yourself the beneficiary! However, the extent of those protections can vary based on state law.

An irrevocable trust can also protect your assets from being used toward unpaid mortgages, nursing home bills, or other expenses after your death, ensuring the total endowment ends up in your beneficiaries’ hands.

Revocable trusts do not carry this benefit, since the trustor still has total control over, and access to, the trust property.

Common Misconceptions About Trusts

We’ve talked a lot about the ins and outs of trusts so far, but there are some common misconceptions about this valuable financial tool that are worth dispelling.

#1. If I have a trust, I don’t need a will.

False. While a trust is a great way to avoid probate and enable protections over certain assets, most trusts deal with a limited range of holdings, whether that be your life insurance policy or your antique armoire. A will is still the best way to govern the distribution of the majority of your estate.

#2. A trust is always irrevocable and takes your assets out of your hands.

False! Revocable trusts exist are probably more common than irrevocable trusts, because they allow you to retain total control of your assets. You can even dissolve a revocable trust if you choose.

However, revocable trusts don’t come with one of the main benefits of irrevocable trusts — i.e., they’re still usually subject to estate taxes. Also, a revocable trust will generally turn into an irrevocable trust at the time of your death.

#3. Trusts are only for the ultra-rich.

Totally false. As with other retirement and end-of-life considerations, you don’t need to be Scrooge McDuck to benefit from sound financial planning.

“Trusts are tools that just about anyone can use to achieve worthwhile financial goals,” writes Dan Caplinger, director of investment planning for The Motley Fool. “With many different purposes for trusts, you might well find that you could benefit from establishing a trust for yourself or your family.”

#4. The cost of setting up a trust isn’t worth it (unless you’re ultra-wealthy).

False. Can actually be less expensive than the costs of probate court, which sometimes eat up as much as 8% of the total estate.

Although end-of-life planning isn’t anyone’s idea of a party, your loved ones will be grateful for the time you took to do so thoroughly and well.

Moving Forward

Educate yourself as much as you can before making your final decision. A good starting point is to read part one of this two-part series, Understanding Trusts Part 1: What Is a Trust and Do I Need One?

Then, to gather more information on trusts and to learn how one could be useful in your own estate planning process, feel free to contact us directly. We’ve interviewed and worked with many local attorneys and have selected a small group that we trust to help you sort out this part of your financial story.

We’re happy to be here to help ensure your wishes are carried out exactly — after all, your story doesn’t end with you.

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Tanya Nichols, CFP®, CDFA
Tanya Nichols is a fee-based CERTIFIED FINANCIAL PLANNER™ professional and Certified Divorce Financial Analyst located in Duluth, MN and serving clients across the country. Align Financial takes a simple but deeply impactful approach to wealth management, connecting your money to your life in a way that feels right to you.

Because Align Financial is independent of Raymond James, the expressed written opinions above are our own and not necessarily reflective of Raymond James’ opinions. Read our full disclosure here.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® in the U.S.