Benefits of Using a Trust in an Estate Plan

Couple learning about the benefits of trusts for estate and financial planning
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Explore the versatile role of trusts in estate planning with this guide. Learn how trusts can protect assets, manage inheritances for special needs, support non-traditional families, and facilitate charitable giving, all while avoiding probate. Ideal for anyone seeking to understand how trusts can enhance their financial planning strategy.

Trusts are versatile tools that can address various financial and personal concerns, making them valuable in many estate plans. A recent article from Carson Wealth, “The Benefits and Purpose of Trusts in Estate Planning,” explains how trusts can serve as a planning tool offering protection when life throws curveballs. Even the most fiscally savvy individuals may find themselves facing a nasty divorce, confronted with a life-changing medical emergency, or dealing with a failing business. Assets inherited outright by beneficiaries are at a higher risk of being lost to creditors, divided in divorce proceedings, or drained by unforeseen emergencies. This is where trust planning comes in. Learn some key benefits of a trust for financial and estate planning.

Trusts Make Sense for All Tax Brackets

Due to tax cuts made in recent years, Americans can give nearly $13 million in assets without paying any federal estate taxes. Only 0.2% of all taxpayers worry about federal estate taxes these days. Yet the benefits of using trust and comprehensive estate planning are essential for people in any tax bracket, not just the wealthy.

What Are Trusts?

A trust is a legal arrangement where assets are transferred to a trustee, who manages them to benefit designated beneficiaries. Trusts are not just for the wealthy; they can be beneficial in many situations, regardless of the size of your estate.

What Types of Trusts Work Best as a Planning Tool?

At its simplest, an asset protection or spendthrift trust is a trust funded by one person to benefit another. Assets remaining in the trust are protected from the claims of the beneficiary’s creditors because the law respects the distribution standards established by the trust’s creditor.

If the parent decides distributions may only be used for their child’s health, education, maintenance, or support, the child’s creditors cannot place a claim on the funds while they remain in the trust. Payments to the creditors would not meet any of these thresholds.

What Are the Advantages of a Trust?

Ways Trusts Provide Asset Protection

One of the primary benefits of a trust is asset protection. Assets held in a trust can be shielded from creditors, lawsuits, and even marital disputes in the event of a divorce. This is particularly important for individuals in high-risk professions or those wanting to protect their children’s inheritance.

Asset protection trusts can be used for people who prefer to avoid imposing too many harsh restrictions on their assets, retaining both flexibility and creditor protection.

Different Types of Trusts Allow Flexibility in Management and Distributions

If the trust creator thinks it appropriate, they can add flexibility by naming the beneficiary as their trustee. This typically occurs after a beneficiary has reached a certain age set by the trust creator. Even this additional layer doesn’t eliminate the asset protection benefits the trust provides if the beneficiary-trustee still has a clearly articulated standard to follow when deciding whether to make a distribution to themselves.

How Would a Trust Protect Against Reckless Spending?

If you’re concerned about a beneficiary’s ability to responsibly manage a large sum of money, a spendthrift trust can be structured to provide controlled distributions. This can prevent reckless spending and ensure that the inheritance supports the beneficiary over a more extended period.

Spendthrift trusts have a reputation for onerous restrictions. The name alone conjures up the concept of protecting assets from mismanagement by the beneficiary. However, the basic structure itself doesn’t require unduly tricky restrictions. There needs to be a trustee and some guidance for the trustee to follow in making distributions to the beneficiary.

What Types of Trusts Can Protect Special Needs and Vulnerable Beneficiaries?

For beneficiaries with special needs, addiction issues, or other vulnerabilities, certain types of trusts can provide necessary financial support without compromising their eligibility for government benefits. A special needs trust can be tailored to address the unique requirements of these beneficiaries.

Trusts Can Be Beneficial for Non-Traditional Families and Blended Families in Particular

Trusts offer significant advantages for non-traditional and blended families. They can ensure that your assets are distributed according to your wishes, providing for a current spouse while also preserving inheritances for children from previous relationships.

Using Trusts for Charitable Giving

If philanthropy is a part of your financial plan, a charitable remainder trust (CRT) can be an excellent tool. It allows you to receive income during your lifetime, with the remainder going to your chosen charity. Taxpayers put assets in the trust, collect annual payments for as long as they live, and get a partial tax break. Only 10% of what remains in the CRT must be donated to a charity to qualify with the IRS. This can also provide tax benefits.

What Additional Tax Benefits Do Trusts Provide Married Couples?

Married couples enjoy additional tax benefits of trusts. The first spouse may leave property of unlimited value to the surviving spouse without incurring any estate tax upon the first spouse’s death. This unlimited marital deduction shields assets from estate taxes and helps support the surviving spouse. Assets can be distributed directly to the surviving spouse or through an indirect transfer to a qualifying trust for the surviving spouse’s benefit.

Trusts Avoid Probate

A properly structured and funded trust can bypass the New Mexico probate process, saving time and money and maintaining privacy. Probate can be a lengthy and public process, so avoiding it is often a desirable goal in estate planning.

Consult with Professionals Before Establishing a Trust

Working with a financial advisor and a Las Cruces estate planning attorney like Michele Ungvarsky is essential to determine the best trust for your personal and family situation. Trusts involve complex tax rules and regulations; professional guidance is crucial in navigating these complexities.


Trusts are not one-size-fits-all solutions, but they offer flexible options for a wide range of planning goals for the present and how you wish your estate to be handled when you are gone. Whether you’re looking to protect assets, provide for loved ones, support charitable causes, or avoid probate, a trust can be a powerful tool in your estate planning arsenal.

Remember, the use of trusts involves intricate tax rules and regulations, and it’s advisable to consult with an experienced estate planning professional before implementing such strategies. Request a consultation with E-Law to discuss how a trust might serve your financial and estate planning goals.