Everything You Wanted To Know About Trust Funds

Everything You Wanted To Know About Trust Funds

Trust funds are becoming more popular given the massive amount of wealth the Baby Boomers have created. This post will share everything you wanted to know about trust funds and more!

I was speaking to Bob, a 42 year old acquaintance who told me he received a trust fund when he was 35. His parents sold his grandparent's company for around a hundred million dollars.

Can you imagine getting a phone call from dad one day after busting your butt in high school, college, and work for 21 years to find out you just inherited $10 million bucks?

What's more, you learn that your seven year old son also inherited $3 million dollars with a trust of his own. Time to kick back and do nothing! Or you could even create your own trust fund job if you want to keep up appearances, secret or not.

Why Work When You Have A Trust Fund?

I asked Bob why he was still working.

He said, “For pride. I want to see what I can do on my own. I never want to touch my grandparents' money because I would feel a lot of shame. What business do I have using their money to pay for a first class plane ticket when he bent over backwards building his own company.

Bob said he would never touch his trust fund for as long as he lives. Sounds like an honorable thing to say, but I have my doubts.

On the contrary, I'm pretty sure most of us would tap our trust fund in some way. I'm looking to buy a house in San Francisco, for example. What's withdrawing $1,000,000 for a downpayment when there is still $9 million left? At least I'm not buying a mega-mansion for $8 million.

When I was still working in finance, I was planning on going to Wimbledon for a week to watch the tennis tournament. Instead of going back home in the middle of the tennis tournament due to work, I'd just stay through to the end and spend $1,500/day on tickets and another $2,000/night at a luxurious hotel!

Maybe I'm being dishonorable with my grandparents' money, but gosh darn it. I'm telling you guys the truth! Can you handle it?

Inquiring Whether I Had A Trust Fund

After hearing Bob's story on inheriting a multi-million dollar trust fund in his mid-30s, I shot an e-mail to my dad that evening and wrote,

“Dear Dad,

I hope all is well. Any chance I have a trust fund?

Your loving son”

My father, true to form, responded in his usual curt manner, “No, you don't.”

Damn it! Back to the salt mines I go. Secretly, I was hoping I would have a trust fund surprise.

The Thought Process Behind Trust Funds

The quick and dirty way to think about trust funds is to first think about the death/estate tax. The estate tax is basically a tax the greedy government deploys whenever you die with assets above a certain amount. Spending all your money while living might not be a terrible idea!

For the year 2023, $12.92 million of your estate can be excluded from taxation upon your death. For couples who are legally married, the federal exemption of $12.92 million may pass directly from the first-to-die to the surviving spouse. Thus, providing a federal exemption upon the second spouse's death will increase from $12.92 million to $25.84 million. That's a lot of money!

In other words, if you have less than $12.92 million in assets as an individual or less than $25.84 million in assets as a married couple, there's really no need to set up a trust fund to avoid taxation for an offspring.

All you've got to do is write in your will who gets what upon your death. 99.5% of all estates fall under this amount so for practically all of us, this post is irrelevant. On the flip side, now you have a good idea of who the really rich people are if you find out they have a trust fund. Keep reading to learn some of the benefits of setting up a trust for the benefit of your heirs.

Historical estate tax exemption amounts for trust funds

Why You Want To Create A Trust Fund

If you do have more than $12.92 million as an individual or $25.84 million as a married couple, creating a trust fund per person is a smart way to go. You don't want to go through public probate court where everybody can get the details of your finances. Probate court is also more expensive and messy. Creating a revocable living trust has many benefits and makes things much clearer for your heirs.

“If you know exactly how you want to distribute your assets, why make your beneficiaries go through all the paperwork after your death to handle this when you can spend a small amount up front to set up the trust,” says John, a Financial Samurai reader. John said his trust cost $5,000 to set up. So did ours.

The highest rate for the estate tax is currently 40% (down from 55% in 2001). Either way, taxing people more when they die seems like a very peculiar thing. Their incomes were already taxed when they were alive.

Your goal isn't to die with boat loads of money. Your goal should be to use your money to live the best life possible. Sure, it's OK to die with wealth that's up to the estate tax exemption threshold. But dying with any more is just dumb given you've got to pay a 40% death tax rate.

There's been such a widening of the wealth gap over the past century, it might not be a bad idea to redistribute some of the wealth to those who need money the most. You should probably also donate more of your wealth to your children while living. It's much more satisfying if you don't spoil them rotten.

Unified Credit And Annual Gift Tax Exclusion

The unified credit allows you to give away $12.92 million during your lifetime without having to pay gift tax. Heck, why there is a gift tax in the first place is beyond me.

For 2023, you can give $17,000 a year to as many people as you want without triggering the gift tax. The amount is indexed each year for inflation.

In addition to the annual exclusion amounts, you can also give the following without triggering the gift tax:

  • Charitable gifts.
  • Gifts to a spouse.
  • Gifts to a political organization for its use.
  • Money for educational expenses.
  • Money for medical expenses.

Below is the historical gift tax exclusion amounts per year. The amounts really having increased a lot over time.

historical annual gift tax exclusion amounts

More Questions About Trust Funds

I asked my friend Evan, an estate planning lawyer to provide more answers about trust funds.

Sam: How much does it cost a typical family to set up a trust fund with a lawyer? What determines the cost of setting it up? e.g. time, amount in the trust, etc.

Evan: Are you talking about inter vivos trust (during life? to receive gifts?) or testamentary (created at death for inheritance). I can't really answer time and cost they are all relative to where one lives and what type of attorney they are using. Living in the NYC area you can find a competent attorney at $1,000 for a plan all the way up to $50K in some larger firms in the city (and everything in between).

Sam: What are the list of rules you can institute before the trust beneficiary can legally withdraw money from the fund? e.g. age seems to be a common one. But what about saying something like, “Only if the trust beneficiary gets married,” or “Only if the trust beneficiary has a job making less than $50,000,”etc.

Evan: The rules can vary from pure age (the majority) to some of the examples you provided. What one has to avoid is using a rule that is either ambiguous and/or against public policy. An example that I remember seeing was “income as long as they are following Jewish customs.” It is easy to imagine the horror that would incur in court over “what is Jewish enough for a payout.”

Sam: I'd like to know how many rules one can create. I imagine a lot of trust beneficiaries grow up to be not the ideal people in the eyes of the trustees. How do we make sure good people get the money and not spoiled, lazy folks?

Evan: If we are talking inter vivos (i.e. created during life) then often you'll see provisions where the Grantors/Settlors/Trustors are able to fire the trustee and replace with someone who is not subordinate under IRC 672 (e.g. no kids no employees). If we are talking about at death beneficiaries often have the power to replace trustees and if not expressed specifically there is often a provision in a State's laws to provide for same.

Sam: What are the main tax advantages of setting up a trust fund?

Evan: The main tax advantage is for estate taxes not income taxes. Especially when you consider that Trusts are taxed at a compressed tax schedule for income tax purposes.

Sam: Is the trust fund only necessary for those who are worth more than the estate tax exemption limit since having less wealth is exempt from death tax?

Evan: ABSOLUTELY NOT. A trust is nothing more than a tool. It is hard to get people to think about trust outside the connotation of a stuffed shirt Ivy League brat. For example could 21-year-old Sam have inherited his parents' money? No way, he would have blown it on the BMW you've talked about since you're pretty frugal. Me? I would have went for the Benz. So you lock it up in a trust until an age someone thinks is appropriate.

Sam: What if you have a child with special needs and isn't very good with money?

Evan: Then you'd have to look into a 3rd party special needs trust REGARDLESS of how much money the family has.

Sam: Can you basically set up a trust so that only a certain amount can be withdrawn a year by the trustee? e.g. $3 million trust, max $30,000 a year for the next 30 years?

Evan: You wouldn't do it but you could limit your Trustee's discretionary power. Often one is looking for flexibility with control.

Sam: What's the most common misconception about trust fund babies in your experience?

Evan: That they must be wealthy beyond belief. As explained above there are tons of random examples.

Sam: At what income and net worth level do you see trust funds start to be created?

Evan: It all depends on the situation – Special Needs Trusts (SNT) get created with anything, while dynasty trusts (multi-generational trusts) usually take millions to make sense.

Something good to know: Invter vivos vs testamentary do not refer to when the child gets the money – it refers to when it is funded. Inter vivos trusts are funded while the parents are alive (i.e. using the $15k/yr gifts) while testamentary trusts are funded while mom and dad die. 

Trust Funds For All!

Thanks to Evan's feedback, it looks like trust funds are available not just for the very wealthy. Trust funds are for everyone who wants to have more control over how their funds get dispersed during their lifetimes and after death.

There are plenty of people out there who need financial help. However, some would probably waste their windfall given the lack of discipline or money management skills. A trust fund can help make the money last longer.

Hopefully, you are now considering creating a trust fund as well. Under President Joe Biden, there's a good chance the estate tax threshold may decline back to levels before President Trump took office.

That said, you can still find ways to make your children millionaires by opening up a Roth IRA and custodial investment account early. The sooner they start working and investing, the better. They might become so wealthy that a trust fund isn't needed!

Related reading: Learn why your estate plan needs a Death File and a detailed Schedule of Assets.

Get Affordable Life Insurance

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It's much easier to apply on Policygenius than go to each carrier one-by-one to get a quote. I've know the founders for years and they have truly build a fantastic resource for individuals and small business owners.

With so much uncertainty in the world, creating a revocable living a trust and getting life insurance is a must. My wife was about to double her life insurance amount and pay less with Policygenius. With two kids now, getting more life insurance was very important to us.

If there's one thing the pandemic has taught us, it's that life is uncertain. Get affordable life insurance to protect your loved ones.

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81 thoughts on “Everything You Wanted To Know About Trust Funds”

  1. I have a friend who got a settlement, I help her with her housekeeping, bathing, grocery shopping, etc. She wants to start paying me out of her trust. What information is needed from me so that I can get paid by the trust?

      1. What if you have a trust fund that was set up when you were under age both your parents died and your family keeps telling you you were supposed to get access to it at 25 this pandemic hit and now they’re not giving you access and you have no idea even what the fund level is in it or any of the stipulations cuz they don’t seem to tell you

  2. My father in law had a living trust fund for my wife an her brother good sum of money after my wife an i had been married for 15 years her father put me on his will my wife an i had been married for 20 year her farther pasted 7 years ago an mother 3 years ago my wife pasted 4 years ago whats my right to her half of trust her brother left state i havent heard nothing

  3. faith jackson lanphar

    My husband set up a Charitable Remainder Trust for me in 1998. The amount that was put into the Trust was close to a Million Dollars.

    The Bank that holds the Trust sent me a letter stating that as of August 2019 I will no longer be receiving my income. The Trust it is out of Money. I was receiving 4500.00 per month.

    All documents including the documents that they sent me states it is a life time trust or until my death, then the Trust upon my death will go to 3 different charities.

    The Advisor of the Trust stated very rudely that I have collected for a little over 20 years.

    The Bank has created a account with the remainder of the funds, each time I go into my statements they have been adding statements for years going backwards.

    I have never received statements each year, I never received anything from the Trust except the K-1 for the end of the year to pay the taxes on the Trust.

    Can you help in any way? No one what to help in anyway, the Attorneys do not want to take on a case of this nature. In fact one Attorney stated save what money I have for I would lose.

    How can a bank open up a account without notifying you, also keep adding statements going backwards. I would think this would be illegal.

    1. Thomas D Rees

      I owned a broker/dealer that performed banking functions and offered trust advice in the 90’s. Additionally, my father picked a friend of his to handle a 30 million dollar estate and the trusts for my sister and so I fully understand what a nightmare it can be……Like you, I did not get a statement until a year had gone by and for good reason I never trusted the trustee.

      I ended up having him removed after he lost 1/3 of our money the following year despite our instructions to stay in cash at no risk. It has been a disaster!

      I am a numbers guy and based on the numbers you detailed, something sounds very, wrong. Our laws are improving but generally trustees have far too much discretion which can result in terrible decisions and losses. Find a reputable accountant/attorney who knows trusts and get an initial consultation to see if it is worth pursuing.

  4. I have a friend who has a trust fund his father left for him. He claims he needs $100,000 for documents necessary for him to access the funds. Is there anyway this could be true?

  5. Getting Answers

    The previous posts have been very informative and provided some insight into my situation. My grandfather created several businesses and assets totaling north of $10 mil. Several years ago he had a sudden fatal heart attack. My grandparents only had one heir, my father. My father passed away six months after my grandfather. My grandmother and mother did not get along at all. My grandmother asks me to come by one day. She tells me that she has put her house into a trust. My grandfather’s attorneys, accountants and business partners drafted a plan for my grandmother and beyond She then tells me about the businesses and assets. When this happened, I was in my early 20’s. At that time I was working in college and working on starting my own life with my college sweetheart. I was really close with my grandmother. I would go by and see her, run errands or anything that she asked of me. When I was in graduate school, my grandmother decided to move to a retirement home. During a visit, she brought up her brother’s children that live 2000 miles away. She repeatedly told me that they have been very successful and have no interest in coming to this side of the country to be involved. Fast forward a few years. When my grandmother died. I lived several hours away I was never contacted. I was mad. Then, I found out her nephew was named as the trust beneficiary. I contacted my grandfather’s attorney. He would not provide me any info. I am on the verge of turning 40 with a family, well established, graduate degrees. My wife and I have professional careers and have paid for everything ourselves. At this point, I would like some closure so that I can decide if I want to continue on m current path or If I will be able to be able to not have to worry about a mortgage, securing my kids’ education and work 70= hours per week. Also, I will be able to carry out my grandparents wishes to make it grow and to help people in the process. Any suggestions?

  6. How do I gain access to my trust fund? My dad left it to me but my brother controls it. I am 49 years old & my dad died on December 4, 2017.

  7. I had a major stroke at 37 years old a local hospitals ER Doctor let me have the stroke my parents sued the hospital I won the case but the lawyer made me put my winnings in a Florida trust now when I need something they deny me my money can they do that? And is there anything I can do to get my money transferred out and into another better trust or just pull it all out now? I need help please I’ve been fighting this trust company since 2010 and I shouldn’t have too

    1. Austin Hicks

      Omg. I’m dealing with the SAME PROBLEM, with a Trust in Florida. Get denied, for stupid stuff. VERY FRUSTRATING, I have the same question.

  8. A friend of mine’s family set up a irrevocable trust and has 5 life insurance policies in the trust where the trust (his inheritance) pays the premiums. He will receive no benefit from these policies, is this legal? Can he challenge this trust?

  9. I had no idea that an estate valued at over $5.3 million would be subject to an estate tax. I can see how having a trust fund set up to allow your children to benefit the most from their inheritance would be really nice. You would probably want to make sure you hired someone you trust to manage it though.

  10. Lori J. Melnyk

    My father passed away about six months ago–we, the seven adult chidren, have received nothing now–we are all in our 60s or 50s ourselves. My father had told me that we would receive money in a family trust, divided equally between the siblings, and he advised me to pay down my mortgage in that–but the family trust goes on until my mother dies. She has a wife’s trust, so I imagine she is getting that now that he has passed. The thing that concerns me is that I was very close to my dad–and not to my mother at all-she prefers the other six kids to me and she didn’t want me speaking at my father’s funeral. It has always been a very awkward thing–my dad adored me. I just received a letter from my siblings–they are the executors–they want me to sign a document giving up all the rights to my father’s will. They say my mom will write a new will and divide the estate seven ways so I will not lose out. I am not trusting of this. I also wonder if she wants this will dissolved so she can have the family trust–the chiidren were all named in this family trust. My father was very careful with money and my mom was the opposite so I am hesitant to sign away all my rights. But my siblings are already angry at me for not signing. I feel that this would be wrong–and that I could be left with nothing. I just can’t bring myself to sign.

    1. Cameron Stewart

      What happened, if you do t mind sharing? I’m in similar situation and not being informed I just want to understand what is or has gone on….. thank you, Cameron

  11. Just to understand, I hate you bob. You get 10M and you don’t use it? FFS donate it or give it to someone else. The stuff I could do with just 1M… I mean COME ON you and your kid together have 13M and you do NOTHING with it? What is wrong with you?

    >I have pride

    God god you’re a baby. Who cares when you have enough money to do WHATEVER you want.

  12. my husband has a trust and has gotten a large sum of money. His CPA has had him claim the profits on our personal filing. my questions is if we include the money as joint income am I entitled to half of the money. What he’s doing is putting the money in the trust but claiming as joint income.. why would I be responsible to pay taxes ? on money I don’t get .. I live in a Washington state and its community property state – See more at: https://www.financialsamurai.com/everything-you-wanted-to-know-about-trust-funds/comment-page-1/#comment-282096

  13. my husband has a trust and has gotten a large sum of money. His CPA has had him claim the profits on our personal filing. my questions is if we include the money as joint income am I entitled to half of the money. What he’s doing is putting the money in the trust but claiming as joint income.. why would I be responsible to pay taxes ? on money I don’t get .. I live in a Washington state and its community property state.

  14. My father passed away ten years ago and my family set a trust fund up for me that way it would pay for my college and then give me lump sums every five years starting at 25. I am wondering if some how I could get money out of my trust fund to help me purchase me a reliable vehicle to transport to college back and forth. Would that be possible? Anyone that knows anything please reply. Much thanks!

    1. Hi Hunter,

      Probably not. But you can always get a part time job and buy a cheap car as a temp solution until you have a job after college. Sorry to hear about your father.


      1. Hunter,

        It would depend the terms of the trust. It is possible that support is included as a reason to distribute from the trust, but you would need the Trustee to support your need for transportation.


  15. My dad died long before my mom (who is still alive). Instead of getting an inheritance at the point of my father’s death, the funds from his half were put into a revocable trust. My mom has liquidated the assets in the trust and spent the money. Is that legal as as the manager of the trust?

      1. David, it would depend on the terms of the trust. The way you asked the question it seems like it was a revocable living trust for the benefit of your mother only to avoid probate. It would be no different than if she had inherited the assets and spent it over the course of her life from her own bank account.

        Notwithstanding, when in doubt talk to an attorney.

    1. Evan, I am not answering you but only want to say this is very common case in states and we really need to get its real answer to the question you made.

  16. Hi,

    I have a question for you. Might be a simple no however I am completely new in this information. My father passed away 2 years ago, my mother and her friend handled the will without me ever seeing it, and to this date I am told ‘it is none of my business’. My mature and loyal cousin (I mention these words as he is not one to stir the pot) has told me that my late father told him I had a trust fund. My mother told me I was left nothing and denies my questions. Is there anyway I can find out if I truly have one or not?

    Thank you for your time,
    Kind Regards

    1. Mark,

      Your issue surrounds the idea of what does “handled the will” mean. If they probated the will (i.e. brought it to court) and there was a trust you would have had to be notified. In addition, in most States a filed will is public information. Go down to your County Clerk’s office and ask questions.

      In the likely situation that they didn’t have to (i.e. everything was joint, or via a beneficiary status) then most States will have a procedure to force an executor to produce the will. Even if your dad left you a trust it would have to been funded with some type of asset that is controlled by the will.

  17. I am just stumbling upon this site, and I am happy to meet like-minded people. I have already learned two new things just by reading the comments section. Any recommendations on law schools that would prepare one for starting a Delaware Trust Company?

  18. Hah hah! You made me crack up when l read your succinct email to your dad, and laughed even harder at your dad’s response! Sounds like what my dad would have written! Not your warm fuzzy type. Once, one of my older sisters wrote him asking for money and he replied with “Dear Ms…. Kindly resend your letter correcting all errors made so l can be assured that my money is being well spent. There will be no money forthcoming either, but l am expecting the letter” . Boy, was she pissed!!!!!
    Btw.. I would molest that money as well to some extent..

  19. Another way to avoid probate is to complete transfer of death or payable on death forms for each of your financial accounts. Rules may vary by states, but banking and brokerage houses can provide you with the form that allows you to declare beneficiaries. It is free, easy and easily amendable. While it obviously does not allow for the same level of detail as a trust, it is the bare minimum one should have in place. Firms generally do not advertise or solicit this service, but it is there!

  20. First, good for your friend Bob! He sounds like a stand up guy. Also regarding estate tax amounts, the figures you list as exemption seem to be a very fair amount. Anything above it should be taxed heavily in my view after the person is gone. Anyone who’s made a huge fortune during his/her lifetime was only able to do it due to the society around them and the government policies which provided a stable environment for that person to excel. Without the mighty U.S. military keeping peace across the world, no U.S. multinationals would be able to expand their operations internationally very easily and succeed. Imagine if war broke out every two years in many regions where U.S. companies operate overseas. Without the police departments keeping peace in U.S. cities, especially in affluent communities, no one can truly succeed. Thus when someone passes, their fortune should be taxed as much as reasonable in my view even though the it won’t be spent that wisely either by the government or the people inheriting it. I view the estate tax as a debt to society that’s paid back. Just my two cents.

    1. I go back and forth on the topic of whether estate taxes are fair and just. Your argument is well placed (especially when you combine it with the fact that it really only does affect the top 1%). However, something feels wrong about taxing assets that have already been taxed.

      Notwithstanding I believe MORE people should be pro-estate taxes for the simple reason that step up basis wouldn’t occur for most people otherwise:


      1. I like your argument. Could you just clarify something for me on the step up function?

        For the $5.34/$10.68 million limits, given nothing is taxed under these amounts anyway, does the step up function even apply? Or, does the step up function definitely apply b/c perhaps eventually, the heirs would want to sell the property or stock they inherit, and shouldn’t be taxed based on their parent’s or grandparent’s cost basis?

        Does the step up function stop working beyond the $5.34/$10.68 limits?

        1. Step up works across the board (minus 2010 which was a weird year and not worth discussing b/c it isn’t law now). You get it below and above that number, but some people justify the estate tax law b/c of the step up. I think an example helps – in Canada they don’t have an estate tax, but capital gains tax is due for all assets at death (not sure about their exemption amounts).

  21. I’m a married physician with 2 kids. Due to late start earning actual income (10+ years of med school/residency), I’m at the low end of your Mass Affluent group. Therefore, we don’t have ultra-high net worth yet. Nevertheless, we do have 4 trusts. Both my wife and I have significant life insurance policies and have ILITs for each. Our oldest has special needs and we set up a supplemental needs trust to avoid some dirtbag in the future trying to pilfer her primary source of income. We also set up one for our youngest in anticipation of leaving some for him and as a clear route for some wealthy relatives to give money for his future education. The incremental cost of that additional simple trust was small. The biggest hassle is filing taxes on the trusts that have income (ie the SNT and the simple one). The ILITs don’t need tax returns but do need Crummey letters each year when I deposit the insurance premiums. While I’m not ultra wealthy now, I have potential based on income so thought it prudent to plan early.

    BTW Sam, I have learned a lot from your site and want to say Thanks for this useful info and for connecting me with PC which is a tremendous service!

    1. Doc,

      The very fact that you know what an ILIT and SNT are means you are WAY ahead of the game! Then add in the fact that you read Sam’s site?! You are light years ahead of your colleagues. My day job is a director a wealth management firm and it makes me sick seeing the tax return of some doctors when compared to their balance sheet. It is like they WANT to work until they are 72, and even then, have an unsure retirement.

      I have talked about Special Needs Planning before but you likely know the basics already:

      1. No advice. Being a dad is amazing, fun and humbling experience. Any advice would be kind of cliche but in that vein it is like financial planning in that small things done consistently over time pay off big.

        I found your site through google search. I finally am getting finances in order and was searching google for “average net worth” and found your site. Been hooked ever since!

  22. I’ve set my trust up in a manner that would give my brother and sister’s families a nice cushion to make life a little easier (paid for homes and cars/kids college and a 5 years of a comfortable income), but not where even close to where they wouldn’t ever need to work again. I think that the guy in your example should loosen up a bit honestly and enjoy the efforts of his grandfather. If I keep going at my current pace that is probably about where I would end up…but I do not believe in family Dynasty’s or creating “generational wealth”. 70% of my estate will go to charity.

    That being said, I really doubt that I want to keep on the same path…I’ve come across too many business owners that slaved their whole life only to end up dying at their desk with no succession plan and $100M in the bank…no thanks! The trick is when to jump off the train : )

    1. Have you thought about advanced lifetime charitable gifting as a way to see your favorite charity succeed during your life w/o just writing a check? There are inter vivos Charitable lead and charitable remainder trusts depending on your goal.

      1. Actually yes, that is something I have considered. In actuality though, I think I will always enjoy working in some capacity…and at some point I think that capacity will be working in a philanthropic manner. I do plan managing my own giving during my years here on this planet vs. somebody just getting a surprise big check. I look at it sort of like how I view how the government spends my tax dollars, I think I can allocate them with more purpose and greater impact myself. Now if I get hit by a bus tomorrow…people will just be getting big checks…that is why I look out for buses : )

  23. I agree with your comment, that I find it disturbing how the Gov’t says on already taxed money, we are taking a little more before you pass it along, anything you can do to prevent that, I’m all for it – Here’s a way to avoid the stigma of a trust – STOP Telling people you have one!! As the lawyer said, not every trust is a multimillion dollar fund, if your running around telling people you have a trust that you’re living off of, then you deserve the scorn, IMHO

  24. I suspect most people who are in the above-average class that you write about should consider setting up trust funds (at least in their wills) for their beneficiaries. Trust funds, if constructed correctly, offer liability protection which is one of their primary benefits. If you have young children, you probably have some decent amount of life insurance. Typically, you would want those funds placed in trust to protect them from creditors of your beneficiaries.

    1. S,

      One way you could cut costs but still have some protection is naming the contingent beneficiary on the life insurance policy as the estate vs the children outright…and then use Sam’s discussion points above about a testamentary trust.

      Regardless of income and/or assets most real estate planning attorneys will include a trust for the benefit of the children until at least 21 or 25 (or at least talk to their clients about it).

  25. Too much money, if not earned can certainly affect your motivation. I went to school with a guy who was heir to a huge sugar fortune. He would tell us about the millions he was getting when he turned 34 years old. He planned to stretch college until he came into that fortune. Something tells me he was not ready for this windfall! I knew someone (parents owned income property in NYC) who drove a Ferrari to pick up rents for his parents. He was not learning the business, instead he was like any other low level employee. These people acted entitled and did not work as though they had an opportunity.

    I sometimes wish I had this opportunity, although I think it is rare that the children surpass their parents’ wealth. There is something about earning money that makes it more worthwhile.

    1. Can you imagine knowing at an early age you would be inheriting MILLIONS at the age of 34? Why try as hard? Why get in early and leave late? Why study for 5+ hours a day. It would be so easy to just slack off.

      There is no way I am ever telling my kids they have a trust if I ever set one up. The age I’d allow them to receive the funds would be 40+, and be strictly tied towards education, medical, or charity.

      1. My children already received their “inheritance.” We gave them an excellent private school education and paid for college too. They have all the skills and knowledge to do well in life and they are already demonstrating it. A lump sum inheritance or trust fund would just damage their motivation, so we will spend, give away or indulge our future grandchildren.

  26. Sam,
    Need you to confirm because based on my understanding, I am not sure your following statement is totally accurate: “For couples who are legally married, the federal exemption of $5.34 million may pass directly from the first-to-die to the surviving spouse, thus providing a federal exemption upon the second spouse’s death that will increase from $5.34 million to $10.68 million.”.

    The way I understand is the following: lets say, for example, that a couple has $6M total assets. If one of them passes away and they have no provision in their Will for the creation of a testamentary trust, then the entire $6M would pass to the surviving spouse with no tax implications. However, when the surviving spouse then passes away, that spouse will only have their own federal exemption of $5.34M (not the combined of the two of them) thus needing to pay taxes on the remaining $660K. However, if each of their Wills established a testamentary trust, the following would occur: upon the death of one of the spouses, the first $5.34M would go into trust directly for the benefit of their child (or whomever). The trust would be completely controlled by the surviving spouse but would no longer be part of his/her estate. Therefore, upon the death of the other parent, the remaining $660K that was part of their estate would pass, without federal taxation, to the family. This is the only way that I knew that you could fully take advantage of the federal exemption of $10.68M for both spouses. Otherwise, you are giving up one spouse’s exemption if the testamentary trust is not created. Of course, this isn’t an issue for most of us so it is a moot point but I just wanted to clarify to see whether I have it correct or whether the law has changed.


    1. Cindy @ GrowingHerWorth

      I took a tax seminar about a year ago, and the presenter did a lot of estate planning with very wealthy clients. The way he explained it, Sam’s understanding is correct; one spouse can pass their remaining exemption on to the living spouse. Although, with anything involving taxes, there are exceptions, and stipulations, and the living spouse remarrying has an impact (although I don’t remember exactly what it is).

      1. my husband daughter & her husband have a trust fund….. I’ve been married to her father since she was 15yrs. old now she is married with a family of her owe. My husband of 40yrs. Was noticed he is in there trust, can he read the trust for himself? Is it common for the second wife (me) to be totally dismissed ? But they became part of our blended families!!! My husbands daughter bought us a house if my husband needed to be put in a facility or if he dies ….. I must be out of my house within 30 days broom swept clean and vanished from the family as if I never existed do I need a lawyer??? Thank you for your time.

    2. Dave,

      That was correct prior to the creation of “Portability.”
      Portability allows a surviving spouse to utilize a previously deceased spouse’s (spouse has to die after 2011) Credit Shelter Amount without having to implement a proper tax sensitive estate plan. The executor of a deceased spouse’s estate may transfer any unused estate exemption to the surviving spouse unused Exclusion Amount is the lesser of the basic Exclusion amount OR the basic exclusion amount of the surviving spouse’s last deceased spouse over the amount of the deceased spouse’s taxable estate (i.e. remaining amount).

      The executor of the first spouse’s estate must file an estate tax return on a timely basis and make the election. So even if a small first estate – may now have to file an estate tax return. Obviously will incur legal fees to do so and only the most recent deceased spouse’s unused exemption may be used.

      Some more info: https://www.myjourneytomillions.com/articles/portability-estate-planning/

      The passing of portability was kind of shocking to most Attorneys in the field.

      1. Very helpful – thanks for the reply. I didn’t know about “Portability” as I set up our Wills/Estate plan prior to 2011 and haven’t updated recently.


  27. Trusts are a fairly useful and more common tool than most people think. For example, before same-sex couples could get legally married, Trusts were important for those couples shared assets to protect them from other family members who could legally claim them without the trust (e.g., a jointly owned house and one partner dies, the family might kick the other partner out and sell the house without the trust in place).

    Basically, trusts can be used to avoid lengthy and difficult probate proceedings. If you know exactly how you want to distribute your assets, why make your beneficiaries go through all the paperwork after your death to handle this when you can spend a small amount up front to set up the trust.

    When my partner died, we had everything spelled out in a trust and it made handling the assets easier… and I’m especially grateful that one thing was easy given how hard the rest of the process was.

    As far as cost goes, our two trusts cost about $5K 10 years ago (these included a will for each of us as well, and we probably could have got these more cheaply done, but we wanted good quality work). We probably avoided more than twice that in probate costs.

    I think even married couples today can benefit from having everything spelled out in a trust, but if you’re not married and you have jointly-held assets (or you want your assets to go to people who you aren’t married to), you definitely need a trust.

    1. John – that is a fantastic point! There is a ton of literature on same sex planning. Even with the dismantling of DOMA there is still a need for trusts for same sex couples as some States, unbelievably, do not allow/provide for same sex couples.

      The type of trust you are referring to is usually called a Revocable Living Trust (for others out there).

    2. John – Very good point about avoiding probate. I’ve seen some hairy situations when it came to dividing up property before. Not fun when it comes to family and money.

  28. Several of my friends have trusts and no one has behaved poorly as a result (probably because they were raised well). I know a few who used it to help subsidize costs of a law degree/MBA or purchased real estate, while others haven’t touched the money.

    If I have a trust, I don’t particularly want to know about it or it’s value until after my parents’ deaths when I would have access. I’d rather be like your friend Bob and live without the expectation of money and achieve my own success. But you can bet that I would actually do some spending/investing/charitable giving with it and not feel guilty about using some of the funds.

    1. “If I have a trust, I don’t particularly want to know about it or it’s value until after my parents’ deaths when I would have access.”

      A lot of clients choose not to share that information until necessary. I think it in Sam’s example it was a bit different as the trust was now funded and the beneficiaries should at least know what is going on if for no other reason then checks and balances.

  29. Cindy @ GrowingHerWorth

    Your email to your Dad made me laugh. My Mom always jokes when they spend money on something they enjoy, but don’t need: “We spent your inheritance on bird seed today.”

    I’m just hopeful that my parents will be in a good position to make it through retirement, and that I’m in a better position to help, if necessary. None of my siblings would be able to help support them. As nice as it would seem to have a trust fund, I’m not sure the type of person I would have turned out to be, had that been the case.

    1. Haha, that’s awesome. I’m happy when I can make readers laugh too :)

      I kinda feel the same way about my sibling being able to help my parents, so I’ve already got the strong mindset that it will be up to me to help financially and physically. I’m looking forward to fulfilling such an honor, although I’m not looking forward to my parents getting old for their sake. But, I’ll do the best I can as they did the best they could for me growing up.

  30. I don’t see things quite like your friend. I do understand being honorable
    with the trust. But, never touching the funds doesn’t honor his grandparents
    in my opinion.

    To me it sounds like he is saying, thanks for the gift. I don’t need it. I can manage fine
    on my own, thank you very much.

    His grandfather was proud to give his family a better life. That way all his hard work
    could bring it’s own reward. There is joy in giving. Joy in seeing the recipient use
    the gift for good.

    I think your friend should honor his grandfather by making this gift count. His life,
    his time, his energy was/is worth more than pride.

    Now that being said, I do feel strongly that the gift should be honored. It should be
    used to bring forth blessings.

    1. While I can’t put words is Sam’s friend’s mouth…but another way to look at it is that he is guaranteeing that his grandfather’s legacy is there for future generations

      1. I like that way of thinking. It’s like an ongoing insurance policy… let’s keep on passing it down until one family member really gets down on his/her luck for whatever reason.

        That said, I do admit I’d spend some of it, perhaps mindfully using the money to help other people in need.

  31. For the extremely wealthy (>$100m), there is the option to have private placement life insurance (PPLI) which essentially shields their investments from taxation primarily through the use of offshore tax jurisdictions and housing the investment in a life insurance plan.

    As for myself, I probably wouldn’t stop working completely. I would probably take a year off to travel then work some easy part-time tourism job in Honduras or maybe Hawaii.

    1. Private Placement Insurance is absolutely an interesting topic! I haven’t personally been involved in setting it up for either a client or in my role at my day job.

      1. It is a pretty interesting topic, and to be honest, I’m shocked that the government on its war path to get all the evildoers hiding income outside the US (FATCA, which irritates me to no end but I wont go down this path), hasn’t even looked at this perfectly legal loophole. Here’s a good read on it:

        It’s an old article but still applicable.

  32. When we had our first child 8 years ago my husband and I set up wills and trusts for her and any future children. Part of the reason was that we don’t trust my family from trying to take the kids and all of our money (we are worth more dead due to life insurance right now) and we wanted our kids to be taken care of for the rest of their lives. We also set up a guardian for who will raise our kids if we die. In addition, we have an executor of the estate who will take care of our finances and give money to the legal guardian and children while they are being raised. We have it set up where the executor can use the money for college and any needs up until college. After that, the kids will receive half of what’s remaining at 25 and the other half at 30. We have been talking about increasing the age the kids receive half of their funds and I am not sure how I feel about it. I hope we covered everyting in our will and trust…..maybe I will gain some insight by reading some of the comments.

    1. (we are worth more dead due to life insurance right now) – That’s saying something about your relatives? Sounds like a rather morose line of thought. I’ve seen several families, with clearly defined wills, torn apart over them. Court Battles that have lasted years. All the planning in the world won’t stop some people from fighting over free or life changing money.

      1. Of course its morose. The discussion of wills and trusts is not usually taken lightly. But yes, if we die then the kids will have life insurance on top of everything else we have. Because the kids are little, we have larger life insurance policies. I don’t trust some of my family…..not everyone comes from happy homes. Unfortunately, we can only plan and hope that our families would not fight us on our wishes if something did happen to us.

    2. My will sets up a trust for my kids that gives my brother in law guidance but complete control over distributing funds to my kids. In a separate letter, I explain that if my daughter has a child and is working hard but could use help with a down payment on a house, then please help her out. If my son is dead broke because of drug addictions, he is to get nothing…ever. I do not want my kids getting anything until they have had a chance to make it on their own. Currently they each get half when they turn 40. I honestly thought of raising this age to 60. That way they have a comfortable retirement no matter what but reap what they sew during their working careers.
      This may sound a little harsh, but my spouse does taxes for very rich people who have left vast sums for their spoiled kids and it almost always screws them up.
      Sam, the person you reference who got $10M but does not want to touch it and make it on his own is EXACTLY how I would love my kids to turn out. From the stories I hear from the wife, he is the exception to the rule and sounds like a good man.

      1. I have clients who decided to never pay out their trust and then I have clients that pay out at 21. There is no “right” answer but the documents have to follow your testamentary intent.

      2. That is so foolish. What if you kid dies in a wreck at 30? The money could of been used. So foolish.

    3. Nice job being so on the ball with estate planning.

      I would strongly consider raising the earliest age to 35, not 25. Let’s all think back to when we were 25. Oh man, I think I would have gone a little nuts…. b/c I had my little moment of quarter life crisis as well.

      At 35, I would totally appreciate the money much more b/c I’ve had many more years to understand about investing, taxes, real estate, and so forth.

      1. Thanks! I feel the same way as you do…at 25 I would have blown through some cash. Now, at the ripe old age of 35, I feel like I would be far more responsible. On the other hand, I also wouldn’t mind helping the kids out at 25, so maybe I could add some things to our will/trust.

        1. You should help them at least a little at 25. You have no idea how the economy will be then. No one does. Think smart. Watch the market.

    4. My dad (who I really haven’t known my whole life) is holding the trust over me with the stipulation saying that I have to be married. I’m 35, I’m single, and Iv’e certainly scraped enough of my life away trying to stay afloat. My sister recently got married, and I overheard a conversation that was worthy of overhearing. My dad paid 30k for my sister’s wedding. So, after hearing this, I made a call to him, and he let me know how I would get my own money.

      What are your thoughts? I tell you, as much as I have morals, and I’m very grounded (due to my colorful life) all I want to do is get married (not for the right reasons) so I can pay some very important bills, and use it as a tool to get ahead in my life. I’m suffocating in debt. Marriage is the last thing on my mind.

      Please, share your inputs. My dad is being an ass. Let me know what you think, given you are a parent.

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