When I tell people my test for whether they should consider a trust, they're often surprised.
I believe the threshold for starting to think about trusts is whenever you have any combination of spouse, children, real estate and more than $100,000 of assets. That's when you should at least sit down and have the conversation.
What families need to realize is that the question isn't whether you're "rich enough" for a trust, but whether you're prepared enough for the future you're building.
More Options Around Wealth
The key feature of trusts is that they help families avoid probate, reduce costs (like estate taxes) and protect their privacy. This makes them a smart move more often than many people realize.
More Americans than ever before are thinking about their estate plans. The great wealth transfer is upon us, with an estimated $84 trillion in assets passing from baby boomers to their heirs and charities. Wealth is growing faster than it ever has before, as well, so people have both more complexity and more options.
Impact of the New Tax Law
Last summer's tax and spending megabill made the estate tax permanent, ending (at least for now) decades of trepidation where the estate tax provisions in federal law usually had expiration dates. Congress can take the issue up again, but the current provisions won't expire in the absence of action.
This confluence of forces — a generational shift, growing wealth and federal clarity — has led to a crescendo of awareness that the time to think about estate planning is now.
Growing Movement Toward Trusts
A recent Bank of America survey on Trends in Trust and Estate Planning found that 74% of estate planning professionals have noticed an increase in estate planning activity and that 50% have found that clients should give more emphasis to tax-efficient trusts in their estate plans.
For most Americans, estate planning has often started and ended with their will. However, this data underscores the emerging reality that far more Americans should consider setting up trusts as a core part of their estate plan.
Trusts Are Not Only for the Wealthy
Many people are surprised to hear that they might need more than a will. They have the false impression that trusts are for "wealthier people than me" or "the estate tax only applies if you have millions in assets."
The reason that more families should consider trusts is simple: to avoid a probate process that is time-consuming and potentially messy, even in cases when you won't owe any estate tax.
Probate Makes Planning Urgent
In many states, it takes only $100,000 to require that an estate goes through the full probate process. And once an estate is in probate, it creates a public forum for people to dispute the terms of a will. Even with the clearest of wills where the original intent prevails, both time and fees are wasted.
Most people think about estate planning because something went wrong. It sometimes feels like 80% of people come in the door asking about trusts only after a loved one died and everything went poorly in probate. They don't want that to happen to them.
Not About Wealth but Preparation
I think of this test — having a spouse, children, real estate and more than $100,000 in assets — as merely the trigger to start considering trusts. From there, there are many options to evaluate (revocable vs. irrevocable trusts, for example) and how each might fit with individual circumstances, goals and family situation.
There's no silver-bullet solution that works for everyone, and for many people, a good will is still the right option.
Jeremiah Barlow is the chief solutions officer at Mercer Advisors, a national RIA whose services include financial planning, investment management, tax and estate planning.
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