The answer will always depend on your own personal situation. Almost everyone should have a will, but if your net worth is greater than $100,000, you have minor children, and you want to spare your heirs the hassle of probate and/or keep estate details private, consider adding a trust a mix.
There is no minimum
You can create a trust with any amount of assets, as long as they have some value and can be transferred to the trust. However, just because you can doesn't necessarily mean you should. Trusts can be complicated.
Selecting the wrong trustee is easily the biggest blunder parents can make when setting up a trust fund. As estate planning attorneys, we've seen first-hand how this critical error undermines so many parents' good intentions.
You don't just pay initial costs when you set up an irrevocable trust, such as legal fees and drafting fees. You also need to account for long-term costs. Generally, trustees charge a commission fee on an ongoing or annual basis. This is typically a percentage of the principal value of the trust's assets.
Trustee Fees: If a professional trustee is appointed, expect ongoing fees. These fees are typically a percentage of the trust's assets, often around 0.5% to 1%.
Trusts offer amazing benefits, but they also come with potential downsides like loss of control, limited access to assets, costs, and recordkeeping difficulties.
There are a variety of assets that you cannot or should not place in a living trust. These include: Retirement accounts. Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust.
The grantor can set up the trust so the money is distributed directly to the beneficiaries free and clear of limitations. The trustee can transfer real estate to the beneficiary by having a new deed written up or selling the property and giving them the money, writing them a check or giving them cash.
Trusts are an excellent estate planning tool for Californians as they provide asset protection. Although someone generally can't bring a lawsuit against a trust, filing a claim against the trustee can occur.
A trust is subject to tax in California “if the fiduciary or beneficiary (other than a beneficiary whose interest in such trust is contingent) is a resident, regardless of the residence of the settlor.” See Cal. Rev. & Tax 1774(a).
Decide how you want the funds distributed, such as in a lump sum at a certain date or in specific amounts paid out at regular intervals: monthly, yearly, biennially, etc.
Trusts can be broadly categorized into four main types: Living Trusts, Testamentary Trusts, Revocable Trusts, and Irrevocable Trusts. There are many different types of trusts you can choose from, and understanding how they are different can help you pick the right one for your needs.
While having a trust fund is generally associated with the very wealthy, the reality is that there is no set amount of money required for you to set up a trust. Anyone can set up a trust regardless of income level if they have significant assets worth protecting.
Many advisors and attorneys recommend a $100K minimum net worth for a living trust.
A will may be the least expensive and most efficient choice for small estates with easily transferred assets and simple bequests. A trust without a will can present problems concerning assets outside the trust that become subject to intestacy laws. Larger and more complex estates may benefit by using both arrangements.
There is no minimum for a trust fund, but since there are both monetary and time costs to setting one up, the benefits should outweigh those costs before you start.
Another possible way to get money out of a trust fund is to request a cash withdrawal. This would require putting the request in writing and sending it to the trustee. The trustee might agree. However, that individual or entity must also fulfill their fiduciary obligations.
Setting up a trust gives you control over your money after your death, and sometimes even during your lifetime. Trust funds serve various purposes, from sheltering assets from estate taxes to paying yourself or your heirs an annual income to giving to charity.
With a trust, there is no automatic judicial review. While this speeds up the process for beneficiaries, it also increases the risk of mismanagement. Trustees may not always act in the best interests of beneficiaries, and without court oversight, beneficiaries must take legal action if they suspect wrongdoing.
It can be advantageous to put most or all of your bank accounts into your trust, especially if you want to streamline estate administration, maintain privacy, and ensure assets are distributed according to your wishes.
Rich people frequently place their homes and other financial assets in trusts to reduce taxes and give their wealth to their beneficiaries. They may also do this to protect their property from divorce proceedings and frivolous lawsuits.
Typically, inheritances are more cost-effective than a trust which is why many choose to establish a trust fund rather than an inheritance. Although cost-effective, if your assets are significant, it may be more appropriate to create a trust fund.
Parents and other family members who want to pass on assets during their lifetimes may be tempted to gift the assets. Although setting up an irrevocable trust lacks the simplicity of giving a gift, it may be a better way to preserve assets for the future.
Once your home is in the trust, it's no longer considered part of your personal assets, thereby protecting it from being used to pay for nursing home care. However, this must be done in compliance with Medicaid's look-back period, typically 5 years before applying for Medicaid benefits.