You’ve probably heard someone say, “Just put it in a trust and you won’t have to pay taxes.” While that sounds appealing, it’s not exactly true. Let’s clear up the confusion and break down what a trust really is and isn’t.
We created this information guide for our clients to explain when the added costs that come with a trust may be worth it.
At its core, a trust is an estate planning tool, not a tax loophole. It’s a legal arrangement where one person (the trustee) holds and manages assets on behalf of another (the beneficiary). Trusts can be used to control how and when your assets are distributed, avoid probate, protect privacy, and provide for minor children or family members with special needs.
So why do people think trusts are tax shelters? Some types of trusts—like irrevocable ones—can offer limited tax benefits, but only in specific situations and often with trade-offs. For example, you might give up control over the assets to get those benefits. Most commonly used trusts, like revocable living trusts, do not reduce income taxes or estate taxes. They simply allow your estate to be administered more smoothly when the time comes.
The takeaway? Trusts are powerful tools when used correctly, but they’re not magic. They work best as part of a thoughtful estate plan, not as a shortcut to avoid taxes.
If you're considering setting up a trust, let’s talk about your goals. We'll help you understand what type of trust - if any - makes sense for your situation.
