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.
You can include anything from cash to real estate, stocks, bonds, investments and business interests. Identify who will be the beneficiary/beneficiaries of your trust. You can set up your trust so that any number of people receive your assets, from children or your spouse to a foundation or charity that you support.
However, the general rule of thumb is that owning assets that collectively total $100,000 or more constitutes a trust rather than a will. Of note, the complexity of your trust may determine how much it may cost you to set it up. That said, there is no enforced limit to the amount of money that can be placed in a trust.
One of the biggest mistakes parents make when setting up a trust fund is choosing the wrong trustee to oversee and manage the trust. This crucial decision can open the door to potential theft, mismanagement of assets, and family conflict that derails your child's financial future.
Disadvantages of Trust Funds
Costs: Setting up and maintaining a trust can be expensive. Loss of Control: Some trusts mean giving up control over your assets. Time and Compliance: Maintaining a trust requires time and adhering to legal requirements. Tax Implications: Trusts can sometimes face higher income tax rates.
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.
How Long Can a Trust Fund Last? Generally, a trust fund is only supposed to last up to 21 years. Such a fund is really only supposed to last until its purpose has been served, and there is rarely a reason for a trust fund to need to last longer than that.
Trust Capital Gains Tax Rates
If a trust holds an investment for less than a year, the trust would pay short-term capital gains taxes at a higher rate. The federal capital gains trust tax rates on long-term gains for 2024 are: Up to $3,150: 0% Between $3,150 – $15,450: 15%
Many advisors and attorneys recommend a $100K minimum net worth for a living trust.
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.
If a trust runs out of funds before any trust fund distributions to beneficiaries are made, it's unlikely beneficiaries will receive an inheritance, as creditor rights generally will trump beneficiary inheritance rights in such a situation.
Drafting a will is simpler and less expensive, but creating a revocable living trust offers more privacy, limits the time and expense of probate, and can help protect in case of incapacity or legal challenges.
Transferring assets
Trust funds can consist of a range of assets, including such items as cash, real estate, stocks, bonds, artwork, classic cars, collectibles and family heirlooms. You can place these assets into the trust all at once or make a series of additions and deposits over time.
Most people pay between $400 and $4,000 to prepare a living trust, depending on the size and complexity of the estate, the types of assets the trust will contain, and the state you live in (some states have more legal requirements).
If all trustees are California residents, then the entirety of the trust's income is taxable in California.
For starters, there are two types of trusts. If you are putting your assets in a revocable trust, the IRS could go after your assets in the trust. However, if you are putting the assets in an Irrevocable trust, the IRS generally cannot go after your money.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.
The ability of a beneficiary to withdraw money from a trust depends on the trust's specific terms. Some trusts allow beneficiaries to receive regular distributions or access funds under certain conditions, such as reaching a specific age or achieving a milestone.
While there's no “cap” on how much money you can transfer into your trust, there are enforced limits regarding annual gift and estate tax exemptions.
Trusts offer amazing benefits, but they also come with potential downsides like loss of control, limited access to assets, costs, and recordkeeping difficulties.
While some may hold millions of dollars, based on data from the Federal Reserve, the median size of a trust fund is around $285,000. That's certainly not “set for life” money, but it can play a large role in helping families of all means transfer and protect wealth.
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.
The trustee manages the trust and distributes its assets at a prescribed time. The trustee is in charge of managing the assets in an irrevocable trust while the grantor is still alive.
A beneficiary can sue a trustee for breach of fiduciary duty if the trustee fails to distribute trust assets as required by the trust instrument. When a trustee accepts an appointment, a “fiduciary” relationship is created between the trustee and the trust's beneficiaries.