6 Surprising Ways to Use a Trust

Trusts may carry a reputation of prestige, but you may be surprised to learn a few practical ways that trusts can benefit you and your family.

Many associate the word "trust" with the wealthy, but trusts have many practical uses and can be valuable tools for a variety of people at different income levels.

Some middle-income individuals are surprised to learn about the various ways a trust can benefit them. Not only can they help an individual manage assets and property during their lifetime, but they can provide great value to the individual's family after their passing.

In addition to potential tax benefits, there are six additional common uses for trusts.

  1. Controlling the use of your assets. Not surprisingly, many people want to have strong control over how their hard-earned money is used to benefit family members and others – both during life and after death. While living, a trust can serve to manage a pool of your investments by a professional trustee. The most common use of trusts is to guarantee that after your death, your assets are being distributed to beneficiaries of your choosing and at the time of your choosing. Maybe you're worried about a child, who isn't as financially responsible, receiving a windfall upon your death. With a trust, you can make sure your children don't have access to your assets before they are old enough to make mature decisions, or you can set specific conditions for the use of the money.
  2. Minimizing family conflict Death may come without warning or proper planning for the orderly management of your family's assets. If you die without a will, the state determines who inherits your wealth and in what proportions. Unintended consequences may result, such as disinheriting your intended beneficiaries, or a child inheriting too much too soon. Worse yet, dissention within the family occurs all too often and wealth becomes destructive. Trusts may provide an orderly arrangement of your desires so that your family receives the inheritance you want them to have and at the time of your choosing. Additionally, using a trust can help your family simplify and perhaps reduce the often lengthy and costly process of probate upon your death.
  3. Navigating the complexities of divorce and second marriage. Divorce and remarriage can throw a wrench into your financial plan, often with disastrous results. Without careful planning, assets you assumed would pass smoothly to your children and grandchildren could be legally diverted to your ex-spouse's new family. That won't happen if your assets are in a trust. You can provide for your current spouse while ensuring that your money is distributed exactly as you intend, and doesn't wind up in the pockets of those you do not want to include.
  4. Dealing with a disability or incapacity. Disability – personal or of a spouse, child, or grandchild – resulting from aging, illness, or accident is a reality that affects many families. If, for example, you or a loved one is afflicted with Alzheimer's disease, the aftermath of a stroke, or another catastrophic illness or accident, a trust may be particularly effective in addressing the day-to-day tasks of managing money. Tasks such as paying bills and managing investments can be shifted to the trustee. Additionally, a so-called "special needs" trust may enable a disabled person to qualify for government support programs, such as Medicaid, while still providing extra funds to supplement governmental benefits.
  5. Helping fund education. Education of children, especially grandchildren, is important to many individuals. A trust for grandchildren provides a tool to help future generations of your family realize their educational goals while making sure the funds are protected.
  6. Providing for charity. You can use a trust to ensure your charitable goals are reached in accordance with your wishes or to support specific programs, activities or causes that you care about, and may provide you with both income and estate tax benefits.

Trusts can serve to address a variety of issues that, if unaddressed, can thwart your wishes, erode your wealth and penalize your beneficiaries. With so many types of trusts, it's best to understand and consider all of your options when building a comprehensive financial plan.

For more information, or questions regarding your specific situation, contact PNC today.