How wealthy should you be before creating a trust

How Wealthy Should You Be Before Creating a Trust?

A common misconception held by many is that you have to be wealthy in order to establish a trust. So, you may not have considered setting up a trust as part of your estate planning solely based on the fact that you don’t have a net worth in the millions of dollars.

However, a trust can be a very useful tool when it comes to estate planning, especially if you have a net worth of $100,000 or more, have substantial real estate assets, or for end of life planning. Trusts are also a great option for minimizing estate taxes, protecting your estate from lawsuits and creditors, providing for minor children or those with special needs, or as a precaution in case you become incapacitated and can no longer administer your own affairs.

While there are several financial options available when planning for your estate, consideration should be given to setting up a trust if you have concerns about how your heirs will handle your assets after you’ve died. 

When you establish a living trust, you will choose a trustee who will be responsible for handling all of the assets held in the trust, filing taxes and settling all debts for the trust, and distributing the remaining assets according to the terms outlined in the trust after your death.

These Aren’t Hard Rules

Even though a good rule of thumb for setting up a trust is having a net worth of $100,000 or more, there are other factors to take into consideration other than just how wealthy you should be to have a trust. These include your age, marital status, and earning potential.

Individual trusts can be created by married couples who want to keep their property separate. Or, they can choose to draft a joint irrevocable trust with one or both spouses as grantor. 

Your financial success doesn’t always reside in the present. At some point in your life your focus is going to shift from wealth creation to wealth preservation and protection so that you and your family can enjoy everything you have worked so hard to achieve. 

What Are You Trying to Protect?

Your net worth is a good measure of your overall financial health. It’s the value of all of your assets minus all of your liabilities. You may be surprised to find out that your net worth is much higher than you thought. Unfortunately, your living trust won’t protect your assets from creditors or lawsuits.

Comprehensive estate planning combines the benefits of traditional estate planning with asset protection planning. You want to ensure that your estate passes to your beneficiaries with the least amount of estate taxes and in such a way that they can avoid probate. But you also want to ensure that, during your lifetime, your assets are protected against an unexpected lawsuit or from creditors.

An asset protection trust (APT) is like having insurance for you wealth. An APT shields whatever asset it holds from unforeseen and unexpected lawsuits. Asset protection trusts, whether domestic or foreign structures, can protect your assets, but domestic APT’s have limitations when it comes to using the cash flow from them to support your lifestyle

Contact the Jeffrey M. Verdon Law Group to discuss legal ways to protect your assets.

Posted in Updates.