“A trust? We definitely don’t need a trust,” my husband said, looking at me like I had mentioned a private plane or five-star holiday.
I raised an eyebrow to signal I didn’t believe him. It’s true that trusts are normally associated with the wealthy. But I’d been researching estate planning so we could do the mature thing and get our affairs in order, and I was surprised by what I was reading about trusts. I knew we needed to determine who would take guardianship of our kids if we were hit by a bus. I knew we needed a will. But I was utterly confused when I realized lots of average people use a trust to protect their children financially if they die.
So, I reached out to Jala Eaton, an estate planning lawyer and founder of On My Own Financial. She did what we all want experts to do: confirmed that I was right and my husband was wrong.
We need a trust. Here’s why.
Trusts are financial tools for everyone
First, some vocab. A trust is a fiduciary agreement where a third party, the trustee, holds and manages assets for other people, the beneficiaries.
Eaton has a simpler explanation: “Think of a trust as a basket. You put assets, or things that are important, in it. Then it’s governed by your words and decisions.”
You’ve probably heard of “trust-fund babies” — those lucky, independently wealthy folks who live off the family trust. While that’s the most well-known use, trusts are actually versatile financial tools, Eaton explains.
“With a trust, you have a written document that governs what happens to your assets while you’re here and after you’re gone,” she says. Without one, you’re leaving it to chance.
A trust gives you control, even after you’re dead
Minors can’t inherit assets. So, if you’re a parent who dies without a trust, the court will appoint a trustee to serve as a property guardian. Without a trust, my estate would just go through probate court, with a judge making decisions based on legal precedent. “The state is not thinking about anything deep,” Eaton says.
But with a trust, I can make decisions based on my values and what’s best for my family. Those terms are binding, even after I’m long gone. Any inheritance is disbursed on my terms and managed by a trustee that I chose. I can dictate that my children use their inheritance for certain things, like living expenses, a down payment, medical bills, or travel.
A trust is important, even if you’re not wealthy
I’ve come a long way since growing up poor. Sometimes I forget that I’m not rich, but just eking into the middle class. I own a home and a rental property, and I have enough money to pay my bills, buy groceries, and save a bit. And yet, my idea of a major financial milestone is approaching the point where my net worth will be zero, not negative. If a trust is a basket, mine would be tiny.
But I still need one, says Eaton.
“If you have a small basket, but you have kids, it’s worth putting a trust in your will,” she says.
The sad fact is many of us could have more worth after our death than we have during our lives. I have a life insurance policy that will pay out if I die. If I died in a terrible accident my kids might get a court settlement from a lawsuit. Or, more happily, my novel could be a posthumous bestseller, with royalties pouring toward my kids after I’m gone.
“You’re planning for what you know and what you don’t,” Eaton says.
The logistics of setting up a trust are fairly straightforward
Online estate planning websites, like the one I used to draft my will, can help you establish a simple trust. But Eaton recommends working with an estate planning attorney in your state who can walk you through what would happen in different scenarios.
You’ll have to appoint a trustee to manage your trust. If you don’t have family or a friend who is good with money, there are professional services that will manage a trust for you for a fee.
Once you establish a trust, be sure to update it regularly after major life events like marriage, divorce, or a new family member. Former NBA star Kobe Bryant had a trust for his children, but he hadn’t updated it to include his youngest child, Capri, who was nine months old at the time of his death. That can lead to heartbreak, legal costs, and financial inequity, Eaton says.
I’ll be honest: Setting up a trust can feel like overkill, especially since I don’t have many assets. But as a type-A planner, I love the idea of having control over the unknown, even after death. If a bit more work on my part can protect my children and assets after a tragedy, it’s definitely worth it financially and emotionally.
This article was originally published in June 2022.