A revocable living trust might cost in the range of $3,000 - $5,000, maybe more depending on the size of the trust. An irrevocable trust could cost $20,000 - $100,000, with a net worth of $10 million to $50 million of assets. But this is just a guide. There are a lot of moving parts at play here. And it all comes down to what you want your trust to do for you.
It’s a great step if you’re looking for estate planning. A trust works very well for asset protection. And if you’d like to make sure your loved ones are taken care of for years after, setting up a trust is a wise move.
But the cost of estate planning, asset protection, or long-term care can be wildly different. That’s why we’re going to take some time now to look at everything you need to know about the cost to set up a trust. We’ll also show you how to minimize those expenses.
But before we can do anything, do you understand what a trust is? Let’s get that foundation out of the way first before we explore the costs to set it up.
Understanding the Basics of a Trust
In the most basic terms, a trust is created to be separate from you. It’s a legal way to hold your assets separately so that you can protect them or pass them along to your loved ones.
Now in less simple terms. A trust is a legal arrangement where you,(the grantor) transfer your assets to the trustee. This is the person who manages everything. This trustee makes sure that your assets are passed along to anyone you want, the beneficiary. It’s really the whole point of the trust: hold assets and safely pass them along to whoever you want.
And this is nothing new. Trusts have been around for centuries to protect and manage assets for future generations.
The benefit is that they work really well to safeguard what’s important to you. And they’re exceptionally good at handling complex financial assets without risking them to creditors or lawsuits. Or complex family matters. A trust works well in that situation too.
And when you create a trust, you get to outline exactly what you want, how you want it done, and when it all happens. It’s a really smart financial tool.
What is a Trust?
A trust is like a relationship where two people promise to do something. You, the grantor, promise to take your assets out of your estate and place them into the hands of your trustee, all for passing down to your beneficiaries. Your trustee promises to follow your wishes and look after your assets within the trust.
This is actually a great way to protect the wealth that you intend to pass down to future generations. It also gives you more flexibility, more control, and more financial freedom compared to other estate planning tools.
The biggest plus in trusts is that they’re going to shelter your assets, legally, against creditors and lawsuits. So, if you’re worried about potential debts, or maybe you work in a high-risk profession, you might want a trust to protect your assets.
Mind you, this doesn’t work for all claims. It’s not an iron wall, impenetrable to everything. But it adds layers of protection that will serve both you and your beneficiaries against financial risks.
Different Types of Trusts
But of course, there’s not a one-size-fits-all trust that magically works for everyone. What if you have a lot of real estate? What if you want to donate to charity? Or what if you want to protect your wealth to leave a lasting legacy?
There are various trusts to fit each of those needs and goals. But what’s your goal? What do you need? That’s first and foremost, the biggest question you’ll need to answer. You may know of revocable living trusts, irrevocable trusts, testamentary trusts, and special needs trusts.
Revocable living trusts let you keep a lot of control over your assets during your lifetime and you can make any changes as you need. But they’re not great for asset protection. They’re simple to set up, and cheaper too. If you have less than $10 million in assets, you might only pay 5 grand.
On the other hand, irrevocable trusts have more inbuilt protection. But the tradeoff here is that they have stricter terms for changes. Sometimes, you lose access to your assets permanently, no matter what happens. And if you have more than $10 million in assets, this is probably what you’ll need. But expect to pay at least $10 - $20,000 to set it up.
Testamentary trusts are created through a will. This means they’ll only start to take effect after you pass away. So, you don’t have any option while you’re alive and capable of making any changes.
Special needs trusts do exactly what they’re named for. They work to protect the needs and long-term care of people with disabilities. And why use this kind of trust? Because you can keep helping someone without risking their eligibility for government benefits.
Costs Associated with Setting Up a Trust
But how expensive will this be? What’s the total cost to set up a trust? And is that going to be all? Or should I know about any ongoing costs? Ok, yes, there are some costs to set up a trust. But it’s hard to get into specifics when you have so many factors affecting the price tag.
Let’s just cover the most common expenses first, and then we can talk about how to slash your setup bill for your trust. And it breaks down into two main categories.
Initial Setup Fees
First of all, you’re going to have the startup costs to set up a trust. These are the fees for any of the legal work to draft your trust document. Depending on what kind of trust you’re after, you might also have tax planning fees or asset transfer fees as well, just as a one-off cost.
Of course, the cost of a professional needed to set up a trust depends a lot on the quality of your professional. If you’re using the high-end lawyer in the nice brick building downtown, expect a higher bill. That’s just common sense. But if you’re using your family lawyer and your trust happens to be very complex, that will also push up your set-up costs.
For example, a revocable living trust is considered a pretty simple trust. It’s setup costs are relatively low. On the other hand, an irrevocable trust can be more complex. The set-up costs for this type of trust are probably going to be higher.
Ongoing Management Fees
The other type of cost is for ongoing maintenance. It’s the other side of the coin. You pay once to kick it all off. Then you pay to keep it compliant and functional. Where do these costs come in?
Well, if you use a professional trustee, they may charge you an annual fee, or maybe hourly rates to maintain your trust. Again, it depends on how complex, how many assets, what investments you’re making…etc.
There’s also going to be some costs like tax filing or ongoing legal compliance paperwork. And when it comes time to transfer the assets, there might be some costs there, depending on what kind of assets you’re putting in the trust. Make sure you ask about these ongoing costs when you’re choosing your trustee.
Factors Influencing the Cost of a Trust
So, to recap, you’ve got two types of costs – the initial cost and the maintenance cost. But how do we know how much they’ll be? It’s not the answer you’re looking for, but it depends.
Here are the most common factors that you should know about trust costs.
Complexity of the Trust
This is the big one. Is your trust going to be some big, complicated monster with a ton of moving parts? Or will be simple, straightforward, and easy to manage? This is a huge clue about how expensive your costs will be to set up your particular trust.
A basic, run-of-the-mill revocable living trust is generally cheaper to create than, say, an irrevocable trust. That’s because a simple trust doesn’t have a lot of special provisions. But if you need advice on a complex trust with a lot of assets, requiring a lot of maintenance, and including a bunch of clauses, that’s where you’ll get those higher costs.
For example, let’s say you have a trust with multiple properties, some business interests, and some investments providing income. On top of that, you have some very specific conditions for how everything is distributed among your beneficiaries.
This takes a lot of legal work to set up and manage. So, it’s going to be expensive. Add to that any tax complications or anything that needs specialized knowledge, and your costs go up again.
Geographic Location and Local Laws
Did you know that you don’t have to set up trust where you live? It’s true. Because the state of your trust can affect how much it costs to set up.
For example, you might find cheaper legal and administrative costs in one jurisdiction. Also, local laws could make it trickier or easier to set up a trust. Or maybe tax laws are lighter in your state. It’s best to speak with a qualified professional who knows the laws of your specific area.
Professional Fees
OK, so you know the kind of trust you want. And now you have to weigh up the costs of what it’s going to take to set it up. Because professional fees might be your biggest setup expense.
First, you’ve got the legal fees from the attorney or trust company helping you establish your trust. Then, you’ve got any financial planning fees if you’re working with large sums of money. And then, you might use tax planners to decide how to set up your trust. That’s another cost.
And remember that all these fees depend on the experience and guidance you’re getting. Someone may be the BEST lawyer, the BEST estate planner, or the BEST accountant. But if you want the best, you’re going to pay for the best. Experience, reputation, and quality of service. That’s what you’re getting for your bucks.
Ways to Reduce the Cost of Setting Up a Trust
By now, you might just be hearing that ka-ching, ka-ching, ka-ching sound in your head. Is it really going to be so expensive? Well, it doesn’t have to be.
Here’s what you can do to cut down on some of those costs.
DIY Trust Creation
As we said before, the biggest factor for costs is how complex your trust really is. So, if you’ve decided to keep it as simple as possible, why not try it on your own? A DIY trust might be your best bet to save money.
But I should warn you that you need to be fully informed before walking into this decision. You have to make sure your self-created trust is valid and meets all legal requirements. Even if you’re going to do it alone, talk with someone to get a little guidance before you do.
Online Legal Services
And speaking of lawyers, have you thought about using an online service? These days, you might find online legal services that specialize in trust creation. And it truly is an affordable way to start your trust.
The benefit of online legal services is that they have templates and guidance for creating trusts at a fraction of the cost of hiring an attorney. So, again, if your trust is simple and straightforward, it might be as easy as filling in a couple forms and walking through a step-by-step process from an online legal platform.
The Financial Implications of Not Having a Trust
Yes, a trust has setup costs. Yes, you’re going to have to pay something to get it all going. And yes, there are ways to cut down on those setup costs.
But, here’s a question that doesn’t get asked often enough, what’s it going to cost if you DON’T set up a trust? What will it cost you? Your business? Your future? Your loved ones?
Because it could mean that you put yourself at risk of losing it all to a frivolous lawsuit. Or if you get incapacitated, you lose control of your assets. Or if you get divorced. Or a creditor claims your business? If, if, if, if. That’s a lot to think about.
And what about your loved ones? Will they get less? Will you subject them to extra costs and headaches because you didn’t have a trust set up to care for them when you’re gone?
As you can see, there are costs to NOT taking action. This is what that might look like.
Probate Costs
Without a trust, your assets will have to go through the probate process. This is always time-consuming and expensive. You have court fees, attorney fees, executor fees, and appraisal costs.
And where do those costs come from? Your assets. Those same assets that you intended to pass along to your loved ones. And they get less because you didn’t have a trust set up in place.
There’s also the time factor to think about. Without a trust, probate can take months to see any movement. Imagine the financial strain for your loved ones who may be relying on their inheritance to come quickly when they most need it.
Estate Taxes
There are times when not having a trust will mean more taxes. Without the safety of a trust, your taxable estate is larger. And that means the government will come with its hands out, looking for that costly estate tax. Do you want your heirs to pay that estate tax out of the money you intended to give to them?
The Last Thought
There are a lot of reasons to set up a trust, but don’t let the cost stop you. You can minimize it, manage it, plan for it. But don’t let it stop you from doing the right thing.
A trust will protect your assets. It will safely stow them away until they’re needed. A trust can provide income to your loved ones. It can bring you peace of mind. And it can create a legacy for your family that will last for generations. And the cost of doing nothing could be higher than the cost of setting up a trust.
Above all, make sure you have your priorities clear in your head. What do you want your trust to do? What kind of protection do you need? And above all, how will you protect what matters most to you?
