Financial Perspectives: Trusts aren’t just for the wealthy


There is a common misconception that trusts are set up and used only by wealthy people. This could not be further from the truth. Trusts can be great planning vehicles for people in all income brackets. Take a look at the following example:

Susan is a 45-year-old widowed mother of three children – all minors. She works full-time as an accountant for a local firm. She has accumulated $100,000 in her 401k plan and has a $500,000 term life insurance policy. One night on the way home from work, a drunk driver crosses the median on I-95 and strikes Susan’s car head-on. Susan is killed instantly.

This is a horrible story, but unfortunately we have heard stories like this all too often. Susan did not have a will but had listed her children as beneficiaries of her 401k and the life insurance policy. The family decided that the kids would live with Susan’s sister Nancy. The family has to hire a lawyer to petition the court to allow Nancy to take custody of the children. Because the children are minors they cannot simply take possession of the money.

The family attorney will have to create trusts for the children and get a trustee appointed. This could be Nancy or some other family member. The job of the trustee is to make sure that the money is being used for the well-being of the children.

In the above example it would have been much easier for Susan’s family if she had completed a will and stipulated her wishes as to who should care for her children and how the minor trusts should be set up. The lack of diligence around this would create a lot of work for the family. More importantly, Susan’s intentions would not be known and followed.

There are other circumstances where families need to consider establishing trusts. Families with children who have special needs also need to consider setting up trusts that would take effect when the parents pass away. In instances like this, parents generally set up a life insurance policy that would be payable to a Special Needs Trust that would be used for the needs of the affected child. In other instances the parents would stipulate in their will that the family home would be sold at the death of the second spouse and the proceeds used to fund the Special Needs Trust. Liquid assets such as savings accounts, CDs, IRAs and 401ks could also be used to fund the trusts.

Other instances where trusts are used commonly are in blended families. In second-marriage situations trusts can be used to provide income to the surviving spouse with the remaining assets passing to the children of the deceased spouse. In this instance the deceased spouse can make sure that they are providing for his/her own children and spouse.

Finally, have you ever set up a savings account in the name of one your children, grandchildren or niece/nephew? If you opened these accounts as UTMA/UGMA accounts, they are a form of a trust account. Once money is deposited into these accounts the person who set up the account is obligated to manage the account in the best interest of the child. At age 18 (in most states) the child has full access to the client and can spend the money at their own discretion.

My hope is that I have impressed upon you that trusts are useful tools for all people and not just those that are wealthy. It may also be a reminder to those of you that have not had their wills and other estate planning documents drafted. I urge you to take care of this as soon as you can. Life can be very unpredictable so why risk your family’s well-being by not planning ahead. It may be morbid to think about these kinds of things but if you are no longer here, your family will be glad you were so thoughtful.

Jim Heisler is a Certified Financial Planner with Family Wealth Services in Holmesburg. You can read all his Financial Perspective columns here.

Registered Representative, Securities offered through Cambridge Investment Research, Inc., A Broker/Dealer, Member FINRA/SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor.  Family Wealth Services, LLC and Cambridge are not affiliated.

Jim Heisler, CFP®, CDFA™, CASL™

Family Wealth Services, LLC

8725 Frankford Avenue

Philadelphia, PA 19136


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