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A 2023 survey found that about 60% of Americans don’t have a will or living trust. And while many consumers plan to get a will when they’re older, they may not realize the value of getting a trust. 

Trusts are a beneficial tool for anyone who wants to manage how their money is spent after they pass. Unfortunately, most consumers don’t understand how trusts can benefit them – and how they can actually make life easier for their heirs. Keep reading to learn how a trust works, when to create one, and how to avoid costly mistakes.

What is a trust?

A trust is a separate structure where a third-party trustee manages a beneficiary’s money, securities, property, or other assets for a beneficiary. When assets go into are placed in a trust, they are often safer from creditors and lawsuits than assets held in a checking, savings, or investment account. 

“For most clients, they have a trust to add conditions as to how money, assets or items are distributed – increasing the probability that their wishes are carried out,” said financial planner Mark Struthers, CFA, CFP of Sona Wealth Advisors.

Types of trusts

There are multiple kinds of trusts you can open, and they each have their own benefits and disadvantages. Here are the most common types:


A revocable trust can be changed even after it has been set up and funded. This gives the trust creator more flexibility. 

However, you’ll pay for that flexibility in the form of estate taxes, just like other types of assets. As of 2023, your heirs will owe estate taxes if your estate is worth more than $12.92 million.


An irrevocable trust usually can’t be changed after creation. Irrevocable trusts have more protection from bankruptcy and lawsuits and are not subject to estate taxes.

The biggest downside to an irrevocable trust is that if you need money later on, you won’t be able to withdraw funds from the trust. You also cannot dissolve an irrevocable trust by yourself; you’ll need a court order to do that. 

Inter-vivos trust

An inter-vivos trust is a living trust, which means it is made while the creator is still alive. A living trust can be either irrevocable or revocable. These are the most popular kinds of trust.

Testamentary trust

If you have a will, you can stipulate that some or all of your assets go will be placed into a trust at the moment of your death. This is known as a testamentary trust and is the opposite of a living trust. A testamentary trust is always irrevocable.

Special needs trust

If you have a family member with special needs who relies on Medicaid or Supplemental Security Income (SSI), their program eligibility depends on how much money they have. If they exceed the asset limits set by Medicaid or SSI, their benefits will be reduced.

By opening and funding a special needs trust, the beneficiary can still have a substantial amount of assets without losing their crucial benefits. This gives the beneficiary’s family members peace of mind.

How do trusts work?

A trust can be complicated because it must have a trustee to manage and distribute the funds per the trust’s rules. The trustee can be a relative, an attorney, a financial planner, or anyone else you choose. If you hire a professional, they may charge a flat hourly rate or a percentage of the trust’s assets. The trustee’s fees come out of the trust’s assets.  

The trustee has a fiduciary relationship to the trust, which means they must act in the best interests of the trust and its beneficiaries. 

Trust FAQs

Who should create a trust? 

When you die, your assets will go into probate. This means that the state will determine who is legally entitled to your assets. 

If you have a will and trust set up, your assets can skip the probate process, and your beneficiaries will receive the inheritance much faster. This can be especially useful if your heirs rely on your income and will struggle financially in the interim before receiving their inheritance. 

“It can be particularly valuable in a state like California with long and expensive probates, while it might not be as necessary in other states where probates are more straightforward,” said financial planner Noah Damsky, CFA of Marina Wealth Advisors. “Regardless of your location, if you don’t want your children to have to deal with unnecessary headaches such as probate, it might be wise to create a revocable trust.”

If you have children that are 18 or younger, you can establish a trust that will dole out limited sums of money at your desired intervals. 

For example, let’s say you’re leaving behind $1 million to your child. You can create a trust that will give them $50,000 at a time instead of distributing the full $1 million at once. While this won’t fully prevent your child from squandering their inheritance, it does let you have more control over when they receive the funds.

Where can I get a trust?

A lawyer specializing in estate planning can create a trust for you. If you don’t already know one, you can find a qualified lawyer through the National Association of Estate Planners & Councils

If you have a financial planner, you can also ask them to recommend an estate planning attorney.

How much does it cost to create a trust?

The cost of setting up a trust can range from a few hundred dollars to several thousand dollars, depending on the type of trust and the service you’re using. Nowadays, there are online services that can create a trust for a fraction of the cost of using a lawyer.

If you go the online route, having a lawyer read through the trust after it’s been created may be worthwhile to ensure it’s legal and enforceable in your state. Remember, you won’t find out that a trust isn’t legal until it’s too late.

What is a common trust mistake?

One of the biggest mistakes that Struthers regularly observes is a client creating a trust, but never funding it. A trust is like a checking account – it’s worthless if you don’t put any money in it.

After you make a trust, double-check that you’ve funded it with cash, securities or physical assets.

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Zina Kumok is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 worth of student loans in three years at Conscious Coins. More from zinakumok

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