According to Forbes, the Rockefellers – one of the most well-known wealthy families in U.S. history – have a net worth currently valued at $8.4 billion. That wealth is spread out amongst more than 70 heirs. With the first family trusts established in 1934, most of the wealth has been successfully distributed to beneficiaries throughout eight generations.
Also notable is how living trusts allowed Sam Walton to safeguard his wealth for future generations. Walton, the creator of the Walmart business empire, started his first retail store in 1945. At the time of his death in 1992, his wealth was around $10 billion. His use of trusts allowed his family to benefit from his legacy while continuing to grow as one of the world’s largest family fortunes long after his death.
Like these tycoons, our clients have worked passionately to build a lasting legacy, which is why regardless of their age or wealth, estate planning is a valid concern for many of them. Not only do they want to make sure that their assets pass smoothly to the next generations, but that the inheritance won’t place an additional burden on their heirs. And of course, they want to make sure their inheritances are used wisely!
Trust can afford a lot of flexibility and peace of mind when it comes to estate planning, but unless you’ve worked closely with trusts before, it can be difficult to understand the different types and the role they play in your estate plan.
That’s why we’re here—to shed some light on the role a living trust can play in your estate plan and assist you in protecting your assets for generations to come.
What is a Living Trust?
A living trust is a legal document that protects your assets and directs their distribution upon death. It is an excellent estate planning tool to ensure that your loved ones and beneficiaries avoid uncomfortable, lengthy, and sometimes costly processes sorting out your estate without explicit instructions from you on how to do so.
During your lifetime and after your death, your designated trustee will ensure your assets are managed according to your wishes and transferred to your beneficiaries – children, grandchildren, or charities – which are selected when creating the trust.
The Most Common Types of Trusts for High-Net-Worth (HNW) Individuals
There are many different types of trust funds, but we’re going to look at the ones most commonly chosen by HNW clients.
Revocable Living Trusts are best for someone who wants the most flexibility and control over their estate while still living. They allow you to modify the trust at your convenience by adding or removing assets, renaming beneficiaries, or changing guidelines. Upon death, this trust becomes irrevocable.
Although less common but similar to revocable trusts, Irrevocable Living Trusts exclude the ability to cancel or change the trust once established. Making amendments requires a court order from a judge or permission from all listed beneficiaries. This type of trust allows high-value assets to be excluded from estate taxes.
Irrevocable Life Insurance Trusts make the trust the beneficiary of your life insurance policy, excluding it from your gross estate and making it challenging for courts or creditors to touch these funds.
A Charitable Lead Trust is structured like an irrevocable living trust and can be used to designate your assets to a charity for some time. When donating to this trust, you may be entitled to tax deductions, and then after your death and the charity payout, your non-charitable beneficiaries may pay lower taxes. Similarly, the Charitable Remainder Trust can generate a potential income stream, with the remainder being distributed to your chosen charities at the end of the trust term.
A Generation-Skipping Trust is just what it sounds like. This trust allows you to pass your assets directly to your grandchildren instead of your children. This method enables your grandchildren to avoid the estate taxes their parents would have faced if they inherited your assets. With this trust, HNW individuals can take advantage of the estate tax exemption, allowing their beneficiaries to receive as much as $12.06 million (in 2022) without being taxed.
Benefits of Setting Up a Trust (or Trusts) in Your Estate Plan
Freedom and security. A living trust is one of the most effective wealth management tools available. Not only do they cost very little to establish and maintain, but many trusts allow the flexibility to make changes based on your life’s changing circumstances. Life is unpredictable, but by creating a trust, you’re setting in motion the plans to take care of the people you love when you’re no longer around or able to yourself.
Avoid probate. Probate, an often lengthy and costly process that requires the court to validate and administer your will, can not only delay the distribution of assets to your beneficiaries, but it can cost their inheritance, too. Placing your property in a living trust can avoid this procedure.
Ensure privacy for your family. By avoiding the probate process, the documents of a living trust will never become public record (unlike a will), maintaining privacy around the beneficiaries and distribution of your estate.
Protect minor (and adult) children. For minor children, the trust will hold the money until they are responsible enough to manage it on their own – which might also include staggering the payout over a period of time. Likewise, if you have adult children incapable of managing their own finances, the trustee can hold the money for your child’s lifetime, distributing funds as needed.
Peace of mind. You have prepared and worked hard your whole life! Knowing that your estate will be handled according to your detailed plans will provide certainty and comfort to you and your loved ones. Likewise, you can remain confident that your affairs will be handled properly in the event of illness or incapacitation.
Planning with Trusts for Those You Love Most
Estate planning can be uncomfortable and challenging to navigate, especially for high-net-worth individuals. The nuances are complicated and personal situations are constantly evolving. There are many things to consider when planning your estate, from guaranteeing that your assets end up in the right hands to setting limitations on how a beneficiary can manage their inheritance. As they perform different functions, you may find having both a will and a living trust helpful.
As someone who has committed their life to building generational wealth, it is only natural that you want to preserve that legacy for generations to come. At SA Piggush, we’re dedicated to guiding our clients through this aspect of the wealth management process and beyond. Simply schedule a call with our team to discuss your opportunities today.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.
SA Piggush Financial Consultants and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.