Episode 37: What Is a Trust?

Published: February 25, 2021 | Updated on: February 26, 2021

Thank you for joining us for Episode 37 of our Money Wisdom Question Series, where we answer common financial and retirement investment questions. Today’s question is, “What is a trust?”

Everybody knows they should do some estate planning. Typically, we start thinking about that when we’re older (50s-70s). Part of that planning includes, “Should I have a trust?”, and “What is a trust?”

I want you to think of a trust as a separate entity, almost like a corporation. We put money into it or a house or other assets. Then, we get to control the way that is distributed. I could say I’m going to put money into a trust at my death. My kids don’t get all the money in one lump sum. They have to get the money in maybe monthly checks for as long as the money will last or they don’t get any money until age 35 or 40. That’s a trust.

It’s a separate entity with rules that I can set up before I die. Some people like to say I can control the money from my grave and that’s exactly correct. A lot of people set up trusts for that control. They don’t want their money to be spent in a way that doesn’t match up with their values.

Another thing that a trust can do is protect your money from going to a divorce. If I have a son that gets married and divorced, my money goes directly to my son. There’s a possibility that his ex-wife can go after that money. I can prevent that from happening with a trust.

Different Types of Trusts

There are various types of trusts. Some trusts are irrevocable, meaning I can set one up and I can’t change it. I have one of those. There are living trusts, where I can put the money in and I still control that. I can take it out any time I want.

You can have a trust for tax planning or to avoid probate. There are trusts that can protect assets while you’re alive. And if you want to have a trust to control money after you’re gone, you can create that as well.

You should sit down with an estate planning expert, either a certified financial planner that knows how to do estate planning or an attorney who specializes in estate planning. Have a conversation about whether you should have a trust or not. A lot of it has to do with your goals, dreams, and desires for your money.

Thanks for joining me and I hope you found this information helpful!

P.S. If you enjoyed this topic and want to learn more, download our offer, “The Greatest Gift: Outline Your Wishes with an Estate Plan“.

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