Trader logo

10 Benefits of Creating a Trust to Preserve Wealth

Did you know that creating a trust fund can provide funds for educational purposes? These are the true benefits of creating a trust to preserve wealth.

By Jules FortmanPublished 6 years ago 8 min read

If you thought a will was going to allow you to have full control over where your wealth and properties were properly going to be distributed, you'd be wrong. It won't satisfy your needs if you want distributions spread over an extended period. However, a trust fund can actually give you full control over all of what you own and even have the power to distribute your wealth to anyone after your death. And so many people lean towards a trust fund rather than a will, even if they weren't so wealthy. It's the best type of fund to consider when you own a lot and want to pass it down to family or friends.

A trust fund is like a small company that holds assets like cash and properties, and intends on giving benefits to the individual, group, or company. And trusts usually have three members included in the process; Grantor, Beneficiary, and Trustee. The Grantor is the person, or persons, who sets up the trust and puts stock from investing in the stock market, money, a private business, and other properties into the trust fund. The Beneficiary is the person, group, or organization that is intended to benefit from the trust. Even though they don’t own the trust property, they still have the privilege to gain the benefits of the property as the trust allows. And the Trustee is the one who is responsible for managing the property that’s owned by the trust. Plus, there are multiple types of trust funds that fulfill certain types of needs; Irrevocable Trust, Revocable Trust, Charitable Remainder Trust, and many more. Now that you know the main outline on trust funds, what are the benefits from creating one? If you're leaning more towards a trust fund than a will, these are the actual benefits of creating a trust to preserve wealth that you should acknowledge.

Avoiding Taxes

While both taxes and trusts have different facets, each trust offers a different type of tax advantage. Like Irrevocable Life Insurance Trust, this protects life insurance death benefit that proceeds from estate taxes. The other type of trust fund can be used to create and build savings for a child through gifting that child the maximum tax-free gift. In fact, speaking with a trust specialist can actually determine the best kind of ways to use trusts for huge tax advantages for both the grantor and beneficiary.

And the more well-known trust fund is the Revocable Living Trust. This is a written document that appoints a trustee to control and administer the property of the grantor. However on its own, a living trust doesn’t technically minimize taxes, yet additional provisions, like credit shelter trust, can be included to reduce estate taxes. Either way, trusts can cause savings for both transfer and income tax.

Sound Investment Strategy

According to the law, a trustee has a fiduciary responsibility for the funds that are entrusted to the person to oversee. Regulations, like the Uniform Prudent Investor Act, mention that a trustee must act “prudently” when administering a trust fund. This means holding investments in a sound interest-bearing account and offering assessment of investment goals, analysis of risk and return, and the diversification of assets.

Trustees can be an investment firm or possibly an individual. For all types of trustees, automated investing services such as Betterment have made a really easy way to control a trust in a diversified portfolio for a very low cost. And this is definitely one of the benefits of creating a trust to preserve wealth.

Privacy and Protection

Once the individual has passed away, an estate usually goes through probate. This will open for public scrutiny and assets that can be used to pay off creditors. If the assets are help in a couple of states, probate will take place in every state, as well, which will add substantial costs in order to settle an estate. And the costs are associated with probate that can take between three and eight perfect of estate assets aways from beneficiaries. However, this doesn’t include additional estate and income taxes that can be due during the process of probate.

Through specific types of trusts, all assets that have been placed in a trust are known as property of the trust. Therefore, they’re off limits to creditors and kept out of public record and out of probate. These are actually a pretty useful way to protect assets for people who are at a higher risk of litigation like doctors. This can reduce the potential for lawsuits between heirs, too.

Flexible Distribution

From the benefits of creating a trust to preserve wealth, trust funds have a very flexible way of distributing funds. While not all beneficiaries need the same thing, they’re still gaining something. A trust fund can create a guideline on how and when funds are distributed. Some funds can be for education, medical needs, or anything else.

Distribution can also be scheduled after the beneficiary has reached a certain age or distributed at intervals. This means that the distribution can occur when the beneficiary is about to enroll into college. Overall, it can happen depending on when the distribution is scheduled.

Leaving a Legacy

When you've created a trust fund, you're basically leaving behind a legacy—it's one of the benefits of creating a trust to preserve wealth. All of what you've been making throughout your years will be given away to those who need it. Your funds will be distributed to not only your child and grandchildren, but friends and others who you know need the money when you don't anymore. And this is a very powerful move.

But aside from giving money to your grandchildren for college, you can give to charities as well. After you pass away, it's obvious that you, yourself, don't need that money and property anymore. Might as well give it away to someone or people that you know will use your money and properties properly.

Avoiding Probate

Avoiding probate is certainly among the great benefits of creating a trust to preserve wealth. There’s a reason why the majority try to keep their property out of their probate estate. When you do, you can be able to avoid many of the hassles, costs, and lack of privacy concerns that comes with a probate.

However, if you do place a certain property in your probate estate, you’ll fall under all of those hassles and costs. So many people are eager to avoid this at all costs. So, it’s pretty significant to leave out a property from the probate estate.

Protecting Your Estate and Cash

After you've passed away, don't you still want protection over your property? We all do, because all of our hard work shouldn't easily be taken for granted, especially when passing it on to one of our children or grandchildren. One of the main uses of trusts is to protect your property even after it becomes someone else’s estate.

In addition, you can still protect your money after your death. If you know for sure that your daughter is going to spend that half a million to travel the world that you passed on to her within just one day, you can actually distribute a certain amount to her when she reaches a certain age. Like if you believe that your daughter will be mature enough to handle money at the age of 25, you can set it up so that she gains some or all of your money when she turns 25.

Preserve Family Wealth

The majority of us certainly want to preserve our family's wealth. Among the benefits of creating a trust to preserve wealth, you can definitely preserve your family's wealth. Whether your family has earned a ton of money throughout the decades and want to properly protect it when passing it on to your children, a trust fund can help you with that. Even if your family doesn't have a ton of money, it's still some money and if you want to protect it, you still can.

Even after your death, you still have full control over your family's money. You can pass on the money to your children that you believe will use the money to earn much more, or for investing your inheritance. Whether it's one child or a few, your family's money isn't going anywhere but into the hands of your children.

Providing Funds for Educational Purposes

This is definitely one of the bigger benefits of creating a trust to preserve wealth. College and universities aren't cheap, and everyone knows this. If your children or grandchildren intend on going to college, you know that they're going to need the money to enroll. What so many people create trust funds for, is to provide that money to their children or grandchildren when they want to head to college.

When your grandchild reaches that age when they're ready for college, your trust fund can provide them with the cash that they need in order to go. You can schedule the exact age your grandchild will be for money to be distributed to them. Either for law school, medical school, or any other type of school, many people use trust funds to provide money for their children or grandchildren to go to school.

Benefiting Charities and Institutions

Lastly from the benefits of creating a trust to preserve wealth is giving money to charities and institutions. Those who are very wealthy and have been donating to charities most of their life, they can still donate even after death. Since you don't need the money anymore, there are organizations and charities that truly do need the money. And your name will still be alive after your death while your trust fund is distributing money to those charities.

For any type of charity, organization, or institution, your legacy will be very alive and you're still donating even after you've passed away. And this is truly a great way to give away your money when you don't need it anymore.

personal finance

About the Creator

Jules Fortman

Modern feminist making moves one pink hat at a time.

Reader insights

Be the first to share your insights about this piece.

How does it work?

Add your insights

Comments (1)

Sign in to comment
  • Jacson Sanders3 months ago

    This article really opened my eyes to the significance of establishing a trust in order to preserve wealth. Some of these advantages had never occurred to me before. Excellent observations! If you areFinancial planning FOR YOUR FUTURE , Financial management is very important. If you are looking for a financial management company, you should go here -

Find us on social media

Miscellaneous links

  • Explore
  • Contact
  • Privacy Policy
  • Terms of Use
  • Support

© 2024 Creatd, Inc. All Rights Reserved.