The 7 Most Common Signs You Need a Family Trust

Personal Finance

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Published: October 4, 2024 11:30 am

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Family trusts are useful for controlling and protecting assets if you can’t do it yourself.
There can be significant costs associated with trusts, so they’re only useful if you have a lot of money.
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If you’ve spent any amount of time in the financial corners of the internet, or have a friend who fancies themselves a financial expert, you’ve probably been told it’s about time to set up a family trust. But do you even need one? Here are seven of the most common signs that you might need a family trust.

#1 You Have Complicated Finances

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Family trusts help wealthy people organize their finances and how those finances are controlled and dispersed ahead of time. The more complicated your finances are, the more useful a family trust will be.

If your assets require significant oversight or management in order to remain successful, but you plan on taking a break, undergoing risky surgery, or anything else, setting up a trust can make sure that your assets are controlled the way you want them to. Depending on the type of trust you use, the rules you set in place can be permanent or can be changed at any time.

#2 There Are Chances of a Messy Inheritance

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If you’re rich and taught your children that money is the only thing that matters, or you’ve spent your life making money and suddenly realized you’ve raised entitled brats, you might be expecting there to be a messy and confrontational meeting when the inheritances are divided.

At your death, any inheritances directed by a will go through probate, which can be long and expensive, and if there are any disagreements or legal challenges to the will, then it might never be resolved. A family trust bypasses all these issues by allocating inheritances long in advance with specific rules for when, to whom, and how it should be dispersed.

Also, while a will can be challenged, a family trust is set in stone and much more difficult to overturn or undo.

Additionally, if you are sick, incapacitated, or otherwise unable to do business, then a normal will has no power until you die, while a trust is effective immediately.

#3 You Don’t Qualify for Medicare

Because the assets put into a trust technically no longer belong to you, your asset value drops, which means that wealthy individuals who are reaching retirement age can qualify for Medicare coverage or higher retirement benefits by putting most of their assets into a family trust.

#4 You Want to Guarantee a Charitable Donation

Despite your wishes, while you’re alive, once you’re dead your family can do whatever they want. If you have a school or organization that you support and want to continue to support after you’re gone, then a family trust is the only way to do that.

Once you’ve allocated your assets into a trust and listed an organization as one of the beneficiaries, you can continue to make donations many years after you’ve passed on.

#5 You Need to Disperse Your Money Before Your Death

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If you’ve been diagnosed with dementia, will undergo a risky surgery, or will be incapacitated for an indeterminate amount of time, a trust can help control your assets while you are unable to do so. This not only allows your intentions to be carried out but also prevents people from taking advantage of you. Your family doesn’t have to hope that you’ll kick the bucket soon so your will can finally be enacted.

#6 You Need Protection

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Do you work in an industry that is notoriously litigious? Is there any risk that patients, customers, clients, or rivals will come after you for all you’re worth? Do you work in a less-than-legal industry? Then a family trust would definitely be at the top of the list of things you should look into.

Because a trust isn’t owned by you, but is itself its own legal entity, if you lose a court case, the winner can’t take anything within a trust or anything controlled by the trust. This protects the assets, as well as those to whom the assets are destined, from legal trouble and expensive litigation.

#7 You Want Control After Your Death

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If you want to include young grandchildren, potential great-grandchildren, mentally unstable individuals, untrustworthy relatives, or incompetent recipients among your beneficiaries after you die but don’t trust them enough with a lump sum of money, then a family trust is the best option.

A family trust allows you to specify exactly how your assets should be treated down to the tiniest detail, you can leave money to whoever you want and have it dispersed over years long after you die. It is generally not wise to leave a young child hundreds of thousands of dollars or gift someone with a dangerous addiction even more money to harm themselves or others. Putting stipulations on the inheritance and limiting how much can be withdrawn is a fantastic way to make sure you don’t unintentionally ruin anyone’s life when yours is over.