Tax Tips
8 min. read

Do I need a trust?


Wills are great, trusts are better

If you’ve got a certain amount of wealth, and people in your life that you want to take care of, you probably want to make sure they’ll be okay if you’re not around anymore. So you need a will, right?

Sure! But don’t stop there. You – yes, you! – should set up a revocable trust.

The basics

  • Trusts are a fancy way of titling assets
  • A “living trust” aka revocable trust is a way of handling your assets during your life and protecting their transfer after your death
  • Set it up carefully (with the help of a trusted attorney and CPA) and you’ll be ready for unforeseen problems

What is a trust?

A trust is a legal entity that holds and manages assets put there by a grantor, managed by a trustee, for the benefit of the beneficiaries. Just in case that doesn’t clear it up for you, let’s define those terms.

  • Grantor: The person or persons who created the trust and contributed assets to it
  • Trustee: A trusted individual with the legal authority (and responsibility) to manage the trust according to its terms
  • Beneficiary: The person, people, or charities to benefit from the assets in the trust

In some types of trusts, those will all be separate people, but the same person can take more than one of those roles.

There are two broad categories of trusts: revocable trusts and irrevocable trusts.

An irrevocable trust is probably closest to what most people think of. Once the grantor transfers assets into the trust, they can’t take them back, and usually can’t alter the rules either.

👩‍🏫Note: There are more specific types of trust, like a land trust, life insurance trust,
or charitable trust, that can generally be sorted into one of the above categories.


Revocable trust

Our focus today is the revocable trust, also known as a living trust. This type of trust is an agreement with yourself as grantor, trustee, and beneficiary, all at once. It’s used to manage your assets while you’re alive and your estate once you pass away, and to oversee the transfer of your assets thereafter in accordance with your wishes.

The rules of this kind of trust can be altered by the grantor while they’re alive, but once they pass away, the terms are locked in and it becomes an irrevocable trust before it’s transferred on to other beneficiaries or held and managed according to the grantors wishes.

Why do I need a revocable trust?

Simply put, it gives you more control over your assets than would otherwise be possible, both during your life and after your death.

Conveniently, if you set up a revocable trust, you don’t need to update your will as frequently. Your will can just say “put everything in the trust,” and then the trust can handle it from there.

Speaking of wills: the probate process, in which the will of the deceased is confirmed by the courts as legally binding, is public record. That means anyone, from creditors to deadbeat relatives, can find information about your property after your death. By putting your assets into a trust, you keep that information private, even after your death. When your will says “put everything into the trust” it simply means if you forgot to title something into the trust (or your attorney told you not to title something into your trust) there’s a guaranteed way to get that asset/money into the trust after your passing.

Revocable trusts are also a great way to make sure your loved ones are protected and taken care of, even if tragedy should happen to strike. With your assets safely within the trust and a responsible trustee managing things, you can rest assured that the people that depend on you will still be okay.

Imagine your child marries someone you don’t trust, has kids of their own, and then everyone meets the same unfortunate fate except for your grandkids and your shady in-laws. Do you want your assets in the hands of someone whose judgement you can’t count on? A trust can make sure everything goes to your grandchildren, even if others try to take advantage of the situation.

You should have a revocable trust if:

  • You want rules about what happens with your assets
  • You own multiple entities or have investments in multiple businesses
  • You have more than $1 million in net worth (meaning total assets, including your home and what your business is worth, less your total debts including your house mortgage)
  • You want to set something up for a child with special needs
  • You want your assets and their disposal kept private after your death

How does it work?

Without getting too deep into the details, here’s what to do.

First, meet with an advisor before a lawyer, specifically a CPA or your financial advisor. They can walk you through gathering what the attorney will need and help you start thinking about certain questions that will need to be answered (like who will be the trustee be after you’re gone).

Second, meet with your lawyer to discuss your wishes and have them draw up the trust document.

Third, you put your assets into the trust, retitling when applicable so they are legally owned by the trust (which is legally controlled by you). This is called “funding your trust”. Do not forget this step. Though often overlooked, this is the most important part of the entire process. If you need help, get with your attorney or CPA and they can help you with this part.

Every new asset you acquire gets titled to the trust. But speak with your attorney and CPA here first – sometimes you don’t want something titled to the trust, such as your primary residence (if you have children) and your vehicle.

Once you’ve got it set up, review with a lawyer every three years and make sure you are reading it at least once a year to remind yourself of how it works.

Who can be a trustee?

Literally anyone you want to list can be a trustee. However, we recommend that you list yourself as the trustee, followed by up to three successor trustees. These are people that you can count on to carry out the words you have written into the trust agreement.

For example, you could list Jane Doe, your spouse, John Doe, your brother, and XZY Bank. When something happens to you, the next person in line will become the trustee. Remember that the trust is private and thus the actions of the trustees you’ve selected are usually kept private as well, so make sure to select the right people here.

Who can be a beneficiary?

Your beneficiaries are those that you want to receive your wealth after you pass away. This can work in multiple ways, but here’s an example. If you have two children and a spouse, you might say something to the effect of “Everything goes to my spouse, in trust, until they pass away. Then everything is distributed equally between my children”.

Can I set it up myself?

We strongly discourage trying to set up a trust on your own. Both a qualified attorney and CPA should be involved in this process. The whole point is to set up airtight rules around your assets and what happens to them, and you want expert help to make sure it’s done right.

Can I change it?

Yes, while the originator of the trust is alive, the rules can be amended. We recommend you work with the attorney that drafted the original trust documents to amend it. If you don’t want to work with them anymore, then another attorney will be able to assist you.

Technically most attorneys will amend and restate the trust agreement and not just amend it. This happens to make sure that new rules such as changes to the trust laws, tax laws and so on are included in the new trust agreement – the key is to remove ambiguity over new rules so that your loved ones, your beneficiaries, aren’t having to work through that all later.

Do I still need a will?

Yes, you sure do. Specifically, you want to set up what’s known as a pour-over will, meaning all assets that weren’t already in the trust are transferred there automatically.

What happens to my trust when I die?

When you eventually pass away, there’s a lot of details to take care of. But with a revocable trust in place, many of these are already covered.

Upon the death of the grantor, a revocable trust becomes an irrevocable trust. Since the grantor (you) is no longer around, the trust documents cannot be changed and your wishes will be carried out by the trustee per the words written in the trust document.

The successor trustee that’s been chosen to handle things will manage the trust and the assets within, distributing whatever needs to be distributed to the beneficiaries and keeping everything functioning.

Bottom line

You don’t have to be a multimillionaire to benefit from a trust. A revocable, living trust is a useful money management tool in life and a powerful protection for your loved ones after death.

But remember: don’t neglect to talk to an attorney and a CPA when you’re setting it up. In fact, why not schedule a call with the experts at DiMercurio Advisors today?

Schedule a call

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