If you didn’t grow up in a family with a private jet and a nameplate estate, chances are you’ve heard of trusts but have never given them much thought. 

Trusts tend to carry an air of exclusivity—something only the ultra-wealthy need to worry about, right? Not so fast.

While trusts are often associated with billionaires planning multi-generational wealth transfers and Burning Man stereotypes, they are powerful tools that can benefit anyone looking to protect assets, plan for the future, and, yes, even save on taxes. 

In reality, a trust might be one of the smartest financial moves for everyday people—whether you’re considering securing your kids' future or ensuring your hard-earned assets don’t get tangled up in probate court.

Let’s explain why trusts aren’t just for the elite and how they could be a practical solution for your financial strategy.

The following guide explores the basics of trusts and how they can be applied to individuals across various income brackets. 

❓ What exactly is a trust, and how does it work?

A trust is essentially a legal agreement where one party (the “grantor”) places assets under the control of another party (the “trustee”) for the benefit of a third party (the “beneficiaries”). 

Think of it as putting your money or property in a safe managed by someone you trust (pun intended) to follow specific instructions on how and when it should be distributed. 

This arrangement helps streamline asset management, protect against estate taxes, and historically, keep family drama to a minimum.

A Brief History and Evolution of Trusts

Trusts have been around for centuries—dating all the way back to feudal England, when knights going off to war would entrust their lands to someone until they returned. 

Fast forward, and trusts have evolved into a sophisticated tool for managing wealth, ensuring privacy, and avoiding probate. Whether you’re royalty or simply want to avoid a tangled legal mess, trusts have become an indispensable part of estate planning.

🎉 What are the main financial and legal advantages of using a trust?

So, why would anyone go through the trouble of setting up a trust? 

The top reasons tend to be the following for most people: 

Trusts allow you to skip the often lengthy and costly probate process, ensuring your heirs can access assets more quickly (without waiting for court approval) and privately (keeping the details of your estate away from public records).

The probate process is a court-supervised procedure that occurs after someone passes away to authenticate their will, assess the deceased’s assets, pay any debts and taxes, and distribute the remaining assets to heirs. 

This process can be time-consuming and costly, with court fees and attorney expenses eating into the estate's value. 

A trust can shield your assets from creditors, lawsuits, or even spendthrift heirs.

Certain trusts help reduce estate taxes or provide tax-deferred growth, making them appealing to high-net-worth individuals or those with complex estates. 

You can set specific terms for when and how your assets are distributed, such as at a certain age or milestone, or for specific purposes like education.

🥊 The types of trusts: revocable vs. irrevocable

There are two primary categories of trusts: revocable and irrevocable. The key difference lies in how much control the grantor retains.

Revocable trusts, also known as "living trusts" allow the grantor to change the terms or even dissolve the trust during their lifetime. 

They offer flexibility but don’t provide the same level of protection from creditors or estate taxes.

✅ A living trust helps avoid probate when you pass away. You stay in control of your assets, and after you're gone, the trust’s instructions kick in without court interference. It's like pre-ordering a smooth transition for your estate.

❌ A revocable trust helps keep your assets out of probate, but it doesn’t protect them from creditors or lawsuits. 

Since you still legally own the assets, they’re considered part of your estate, which means creditors or legal judgments can go after them.

❌ Assets in a revocable trust are still considered part of your taxable estate, so there's no direct estate tax benefit. 

❌  Income generated by trust assets is also reported on your personal tax return, and you’re responsible for any taxes due.

Once set up, irrevocable trusts can’t be easily altered. 

While this may seem restrictive, it offers stronger asset protection and tax benefits, as the assets are effectively removed from the grantor’s taxable estate.

Irrevocable trusts include testamentary trusts, which are created through your will and only come into effect after you pass. 

❌ Once you establish an irrevocable trust, the assets are no longer yours—the trust owns them, and you give up control. Depending on the trust terms, you can’t easily change the terms or reclaim the assets without the trustee's or beneficiaries' approval.

✅ Because you no longer legally own the assets, they’re shielded from creditors, lawsuits, and estate claims. This makes irrevocable trusts a powerful tool for asset protection, particularly if you're concerned about potential liabilities in the future.

✅  The big draw of irrevocable trusts is their estate tax reduction. Since the assets are no longer part of your estate, they aren’t subject to estate taxes when you pass. 

✅  Additionally, the trust itself may generate income, and that income is taxed to the trust or the beneficiaries rather than you personally, which may offer further tax planning opportunities.

❌ Unlike living trusts, these still have to go through probate. However, they still offer the benefit of controlling how your assets are distributed, such as managing how your beneficiaries receive their inheritance, like setting age limits or milestones.

Special needs trusts, or trusts specifically designed for loved ones with special needs, ensure they’re financially cared for without jeopardizing their eligibility for government benefits like Medicaid or SSI. 

These are almost always irrevocable; the assets are locked into the trust to ensure the person with special needs continues to qualify for government assistance while the trust provides financial support.

Other special purpose trusts, such as charitable trusts designed to benefit a particular charity or cause, can operate under either framework.

🤔 Who should consider setting up a trust, and when?

Trusts aren’t just for billionaires with sprawling estates—they’re for anyone looking to build and protect wealth while keeping things efficient. Here are some prime reasons why you should consider setting up a trust:

If you’re a high-earner with growing assets and maxing out your 401(k), you may be closer to needing a trust than you think. You’re in the “not rich yet” category—but you're on your way.

For starters, a revocable living trust can streamline your investments while giving you complete control. Instead of individual accounts scattered across different brokerages, you place them into a trust, which organizes your assets under one umbrella. 

If you receive compensation in stock options or restricted stock units (RSUs), you could transfer them into a trust, manage the sale of shares, and even designate how the proceeds are distributed. 

This can be particularly useful for setting aside funds for specific purposes, such as your children’s education or future family needs.

If something happens to you, your heirs don’t have to go through the costly probate process—your investments transfer directly to them.

Trust and Property Example

Trusts are a good consideration if you own property because they make sure your assets don’t get tangled up in probate court.  

Let’s chew on this example momentarily. 

🏡Primary residence: Valued at $1 million.

🏠Investment property: Purchased at $600,000 and now worth $750,000. This property generates $30,000 per year in rental income.

Let’s imagine you want to make sure your future children can benefit from the rental income from your investment property after you pass and avoid the costly, time-consuming probate process and any potential tax headaches for them. 

Without a trust, you’ll likely run into some probate issues. Both your primary home and investment property will go through probate—a public, court-supervised process. 

This could take six months to two years, during which time your family won’t have access to the rental income from your investment property. Probate typically costs 3-5% of the estate’s value in attorney fees, court costs, and other expenses.

💰 Your $1.75 million in real estate means about $52,500 to $87,500 in probate costs.

Your kids may also face tax consequences when they finally inherit the properties, especially if the rental income wasn’t well managed during probate.

Now, let’s look at what happens if you set up a revocable living trust instead.

You create a revocable trust and transfer both properties (valued at $1.75 million) into the trust. You still retain control—you can sell, rent, or refinance the properties just as you could if they were in your name.

In the trust, you specify that after you pass, the $30,000 per year in rental income from your investment property could be used to pay for your children's education, while the primary home will be transferred to them directly.

Because your properties are in the trust, they can take advantage of the step-up in basis for capital gains. Let’s say you bought the investment property for $600,000, but it’s worth $750,000 when you pass. 

Without a trust, if they sold the property, your kids would be taxed on the $150,000 in capital gains. However, with a trust, the basis is stepped up to $750,000, meaning no capital gains taxes if they decide to sell right away.

💰 Trusts and Taxes

Trusts don’t allow you to avoid taxes entirely, but if structured properly, they can help manage and reduce taxes.

If you set up a revocable living trust, income created by assets in the trust is still taxed as your personal income. For example, that $30,000/year in rental income would still be included in your taxable income, and you'd pay taxes on it at your personal tax rate. 

In this case, the trust is tax-neutral while you’re alive—it doesn’t change how much tax you owe.

When you pass away, your kids receive a step-up based on the rental property’s value. Let’s say you bought the property for $600,000, and it’s worth $750,000 at your death. 

The step-up means the property’s new basis is $750,000, so if your kids sell it at that value, they won’t owe capital gains taxes on the $150,000 increase.

However, future rental income is still taxable to your beneficiaries, just like it was to you. 

If they continue to rent the property and receive $30,000/year in rental income, that’s taxable income for them.

If your trust is revocable, it’s still considered part of your estate for tax purposes while you’re alive, meaning you pay the taxes on any income the trust assets generate (like the rental income).

If your trust is irrevocable, the situation changes. In this case, the trust itself may be responsible for paying taxes on any income it generates. 

However, trusts often face higher tax rates on undistributed income, so it’s usually best to distribute the income to the beneficiaries, who may be in a lower tax bracket.

Trusts are subject to income tax like individuals, but their tax brackets are much more compressed, meaning they hit higher tax rates at much lower income levels. 

The 2024 trust tax rates are as follows:

• $0 – $2,900: 10%
• $2,901 – $10,550: 24%
• $10,551 – $14,450: 35%
• $14,451+: 37%

Making Sense of Trusts

To trust, or not to trust?

Reading about trusts feels like diving into the deep end of estate planning, but it’s more straightforward than it seems. 

It’s easy to brush off trusts as something only the super-rich need, but a well-structured trust can offer a lot more to most high-earners willing to reap the benefits while they’re still alive and pass them along to their heirs. 

Costs vary, but typically, a basic revocable trust costs between $1,000 to $3,000 to set up, whereas irrevocable trusts can cost between $3,000 to $10,000 (or more) based on their complexity and permanent asset transfer set ups. 

The costs of setting up and maintaining a trust are well worth it, and when you consider the headaches and expenses, it can save your family in the long run.

While both types of trusts help you pass assets to heirs smoothly, they don’t completely erase taxes. The real beauty of trusts is in avoiding probate. Without a trust, your estate goes through a long and expensive process, with probate fees cutting into the value of your assets. 

If you’ve got a portfolio of properties, investments, or a business, you’re looking at delays, costs, and public court records that can turn a simple inheritance into a complicated ordeal. 

Conversely, a trust bypasses probate entirely, transferring assets privately and quickly to your beneficiaries.

Ultimately, the decision to “trust” or not to trust boils down to how you want to manage your wealth, both now and in the future. 

While a trust won’t shield you from every tax, it offers control, flexibility, and protection that can make a world of difference for you and your loved ones. 

Think of it as a smart investment in confidence—a way to ensure that your hard-earned assets are handled exactly the way you want, with fewer bumps along the road.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.  Tailored Cents and LPL Financial do not provide legal advice or services.  LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.