Skip to content

    How to Use Trusts to Control Wealth Distribution

    November 22, 2024

    Allworth financial advisor Dan Rausch, CFP®, discusses how trusts can offer high-net-worth individuals control over the distribution of their wealth by setting specific conditions, protecting assets, and ensuring privacy for their legacy.


     

    When it comes to passing down wealth, many high-net-worth families want more control than a simple will can provide. A trust allows you to shape not just what your heirs receive, but how and when they receive it. If you've spent years building your wealth, a trust lets you set conditions to ensure it’s handled the way you want, long after you’re gone.

    Let’s take a closer look at how trusts work, what they offer, and how you can use them to manage your wealth distribution thoughtfully and effectively.


    Why a Trust?

    A trust is essentially a legal entity that holds assets on behalf of your beneficiaries. Unlike a will, a trust can bypass probate, which saves time, cuts costs, and maintains privacy. And, with a trust, you have the flexibility to set specific terms on how and when your assets are distributed.

    Imagine you’re concerned about an adult child inheriting a large sum all at once. A trust lets you set up a gradual distribution over years, or link inheritance to milestones, such as graduating from college, starting a business, or reaching a certain age. This way, your wealth becomes an ongoing source of support rather than a one-time windfall.

    Types of Trusts to Consider

    Let’s talk about the two main types of trusts: revocable (or living) trusts and irrevocable trusts.

    1. Revocable (Living) Trusts
      A revocable trust can be changed or canceled at any time while you’re alive. You stay in control, managing assets and making adjustments as your circumstances or wishes change. Revocable trusts are ideal if you want flexibility in case you need access to those assets later on or if you’d like to adjust the terms based on life’s curveballs.
    2. Irrevocable Trusts
      Once you set up an irrevocable trust, it’s essentially locked. You transfer assets out of your estate, which can be a powerful tool for reducing estate taxes and protecting wealth from creditors. Since the assets are no longer “yours” in a legal sense, they’re protected from lawsuits or creditors and can pass directly to your beneficiaries with little fuss.

    Each type has unique benefits, so it’s worth discussing with your advisor to see which fits your needs best.

    Using Trusts to Control When and How Your Wealth Is Distributed

    One of the most powerful aspects of a trust is the ability to tailor it to your family’s needs. Here are a few ways trusts can help control how your wealth is distributed:

    1. Age-Based Distributions
      Let’s say you have young grandchildren and want to support their futures without giving them full access too soon. You could set a trust to release a portion of the inheritance when they turn 25, another portion at 30, and so on. This way, you give them the support they need over time while encouraging financial responsibility.
    2. Milestone-Based Distributions
      Trusts can also release funds when specific life milestones are achieved. For example, you might set up a trust to help a grandchild pay for college, buy a first home, or start a business. This gives your heirs the chance to access funds when most beneficial, rather than all at once.
    3. Conditional Distributions
      Conditional distributions are perfect if you want to ensure that your wealth is used for productive purposes. Let’s say you have concerns about how a beneficiary might handle a large inheritance. You could include conditions, such as requiring your beneficiary to remain employed or reach a certain level of education before accessing the funds.
    4. Incentive-Based Trusts
      Incentive trusts are similar to conditional trusts but go a step further. For example, you might decide that a beneficiary receives additional funds each year they remain in school, make charitable contributions, or achieve career milestones. This approach not only safeguards your wealth but also reinforces the values and work ethic you hold dear.

    Protecting Your Wealth from Outside Risks

    Trusts don’t just help control when/how your wealth is distributed; they also add protection. Here’s how:

    • Shielding from Creditors: Assets placed in an irrevocable trust are usually safe from creditors. So if a beneficiary has financial issues or gets sued, the assets in the trust are often protected.
    • Divorce Protection: If you’re concerned about an heir’s spouse, a trust can protect your family’s assets in the event of a divorce. By keeping your assets in a trust, they’re less likely to be considered marital property, helping protect your legacy from being divided.

    Ensuring Privacy for You and Your Family

    Unlike wills, which are public documents, trusts remain private. This privacy can be essential for high-net-worth families who value discretion and want to keep their affairs out of the public eye. With a trust, the terms of your wealth distribution stay confidential, and only your designated beneficiaries and trustees have access to the details.

    Working with the Right Advisor

    Creating and managing a trust can be complex, so it’s essential to work with an experienced advisor who understands your unique needs. A skilled advisor can help you navigate your options, tailor the terms to your family’s situation, and ensure your trust aligns with your financial goals.

    Trusts offer remarkable flexibility and control, making them a valuable tool for high-net-worth families. Whether you’re looking to protect your wealth, guide its distribution, or simply ensure a smoother process for your heirs, a well-designed trust can provide the peace of mind that comes with knowing your legacy will be managed just as you intended.

    If you’re interested in exploring trusts as part of your estate plan, let’s connect. We can discuss your goals, assess your options, and create a strategy that keeps your family’s future secure.

     

    Dan Rausch, CFP®

    Financial Advisor

    As a certified financial planner with both tax planning and CFO experience, I understand how complex financial situations require an intentional approach. I’m passionate about educating you to make sound decisions because I understand what’s at stake for you. Wealth management is more than choosing the right investments. It also involves deliberately preserving your wealth, so you feel confident in your tax strategy and family estate plan.

    LEARN HOW I CAN HELP >>

    dan-rausch-1

     

     
    © 1993-2024, Allworth Financial. All rights reserved.

      Privacy Policy   |    Disclosures   |    Cookie Preferences   |    Do Not Sell or Share My Personal Information

       

      Advisory services offered through Allworth Financial, a Registered Investment Advisor | Disclosures | Privacy Policy

      Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Check the background of this firm on FINRA's BrokerCheck.

      HMRN Insurance Agency, LLC license #0D34087

      1Barron’s 2024 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking of independent advisory companies is based on assets managed by the firms, growth, technology spending, succession planning, and other metrics.

       2 Retention Rate Source: Allworth Internal Data, FY 2022

      3 The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey. 

      4 As of 7/1/2024, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $22.5 billion in total assets under management and administration. 

      5 InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience. 

      6  2021 Value of an Advisor Study / Russel Investments

      7 Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.

      8 USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.

      9 NBRI Best in Class Ethics 2023. The Best in Class level is bestowed upon clients performing at or above 90 percentile of the NBRI ClearPath Benchmarking Database.

      ✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.

      ✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.

      †Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company. 

      Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.