Today’s video delves into trusts and at what net worth you should get a trust. So many people have asked us this question and we want to answer it for you! Watch the video below then read on to learn the answer may be different than you think.
What Is a Trust?
A Trust, simply put, is an entity that owns property. The trust agreement, or trust document, is a legal contract between that entity and the trustees put in place to manage the property and assets assigned to the Trust. The trust agreement is the document you sign to create the Trust.
It is no secret that I love Trusts! When properly executed and maintained, a Trust is a beautiful and powerful tool that can protect assets for generations to come and save you and your loved one’s time, money, and hassle.
There are many types of Trusts, just like there are many reasons for establishing a Trust. All Trusts fall into two main categories: revocable or irrevocable. As you would assume, a revocable Trust can be revoked or changed during the lifetime of the trustmaker. As the name suggests, an irrevocable Trust cannot be revoked or changed. Once an irrevocable Trust has been established it cannot be changed.
There are also many reasons for establishing a Trust. The most popular is that Trusts, when properly executed and maintained, avoid probate. Other reasons include controlling inheritances for minors or those with special needs, putting safeguards in place for the distribution of inheritances to those with gambling or drug abuse issues, or simply making things simpler for all involved.
Another reason for establishing a Trust would be to minimize tax liability. Let’s look into estate taxes and how Trusts could help decrease tax liability.
Trusts for the Wealthy
As the law stands today, in 2024, the current Federal Estate Tax exemption is $13.61 million per person. This means that your estate is exempt from paying estate taxes until you hit this threshold. So, if you were to die today with less than $13.61 million, you owe no estate tax. However, the estate tax law is currently set to sunset in 2026 to its original value in 2017– which will lower this threshold significantly to approximately $6 million per person.
If your estate is valued at $6 million or more, you definitely need a trust. You may be saying, “I don’t think my estate is worth $6 million.” But if you own multiple assets, you may be closer to that threshold than you think. So, keep this threshold in mind. 2026 is not that far off.
A Trust can help you decrease tax liability and can keep more money in your family legacy. This is why wealthy people use trusts so frequently. And this is why we have the term “trust fund baby”. But this terminology has created some misconceptions about trusts for people of average means. Let’s take a closer look at trusts for someone with an average income.
Trusts for “Normal People”
The vast majority of people have estates valued under $6 million. If this is you, it’s a big club! Welcome! But guess what? You probably still need a Trust.
The ultimate question if you fall into the under $6 million estate value club is: what do you own? If you own real estate, you probably need a trust.
If you own a house, the house can sometimes pass to the surviving spouse without probate. This is dependent on how the deed is structured and exactly what it says. So, it’s important to review this carefully to make sure that your home passes directly to your spouse upon your death– without the need for probate.
If your deed doesn’t allow for this, or if there is no spouse, then this property would have to pass through probate. Which can be a major hassle for your loved ones, can incur many fees, and, again, the primary reason people opt to use a Trust in their estate planning is to avoid the cost and hassle of probate. Because, as we said above, having a trust avoids probate altogether— regardless of the concern for estate taxes.
The same could be said if you own a business. You could establish clear guidelines within the Trust for who your business ownership passes to, and if you own it outright, what you want to happen with it.
As you can see, “normal” people need Trusts too!
What Net Worth Should I Get a Trust?
I’m sure you’re realizing that Trusts are for everyone! They are not just a tool that the ultra-wealthy use, although they do, and it’s a smart choice. People of all net worths should consider the use of a Trust because it’s a smart choice for everyone.
If you think a Trust may be the right tool for you, please give us a call. If you’re not sure if a Trust is the right tool for you, please give us a call. We are here to help you find the perfect estate planning tools to ensure the largest legacy is left for your loved ones– with as little stress and hassle as possible.
Call us at (404) 736-6066 or visit our website to schedule a consultation.
