A trust can cost anywhere from $5,000-$100,000 plus, depending on the type of the trust, the number of assets, or the intention of the trust. But those costs can change, or even be slashed with smart financial planning.
But no matter how much it costs, creating a trust is a smart financial move for you and your loved ones. You’ll get the benefits of asset protection, estate planning, and throw in some tax advantages too. See? Really smart move.
But, we’re getting ahead of ourselves here. We’re selling the features before you even look at the price tag. Let’s talk about trust costs first. So, in this article, we’re going to do just that – explore the costs, where they come from, and what you can do to minimize the costs and maximize your benefits.
Understanding the Basics of a Trust
Do you know what a trust is? What does it do? Where does it come from? The concept of a trust is centuries old. And it’s been a financial tool used all over the world for a bunch of different reasons.
In basic terms, it’s a legal entity that lets you hold and manage your assets at arm’s length from your personal estate. What this means is that you can safely protect your assets from lawsuits, creditors, or court costs, and you can pass them along to your loved ones.
It’s really a versatile tool that can do a whole lot for you and your family. You can protect your wealth, leave a legacy for those you love, look after sick people, donate to charity, and escape the risk of lawsuits. And just like any tool, the purpose of a trust determines how much it costs.
So, before you go into this process, you need to ask yourself some questions.
- What are my needs?
- Why do I want to protect my assets?
- What do I want to do with my money?
- Who should have everything after I die?
- How can I make it easy for my loved ones to get everything they deserve?
This should happen before anything. But once you know the answer to those basic questions, then you can start down the road to creating your own trust.
And what does that look like? Usually, it starts with a trust agreement. This all-important document clearly lays out your conditions for the trust. It’s the foundation of everything your trust stands for.
Then, you choose someone responsible and trustworthy who will carry out all the conditions in your trust agreement. This is your trustee. But again, we’re getting ahead of ourselves. Let’s not go too fast. First, the definitions. Then, the costs.
Definition of a Trust
You form a trust when you transfer your assets into a legal entity that’s watched over by a trustee. The trustee’s job is to look after your trust and make sure your wishes are carried out to the letter.
You, the grantor, can either make an irrevocable trust, which is pretty much a permanent decision where you lose control of your assets. But you gain incredible protection from lawsuits, creditors and tax bills.
On the other hand, you could make a living trust, which offers much more flexibility and control. But it does leave a lot of your assets exposed to possible estate taxes or creditor claims.
But no matter which trust you choose, you’ll have great privacy for you and your beneficiaries. This is kind of where a trust stands out from the crowd. You don’t get this kind of protection and privacy from other estate tools.
And when you place your assets in a trust, you can be sure that they’re going to be passed along to your loved ones after you pass away. And it’s all according to your wishes, as you would’ve laid out in your trust document.
I know we’re supposed to be talking about the price of a trust, but it’s hard to assign a cost to the peace of mind, both for you and your family.
Different Types of Trusts
If you have simple needs, you can create a simple trust. But if you have a complex estate with a sprawling portfolio of real estate, some business dealings, investments, and cash, then you can get a trust for that too. It just depends on what you’re after.
Maybe you’ve heard of some of these options?
- Revocable (often called “living”) trusts
- Irrevocable trusts
- Special Needs trusts
- Family trusts
- Testamentary trusts
- Charitable trusts
But you should know that the complexity of your trust will impact the cost. For instance, a simple trust could be $1,000 - 5,000 all up. But a complex trust with $50 million worth of assets could be over $50,000, and that’s not including the ongoing costs.
The best advice is to shop around. With a trust, it’s usually a case of you get what you pay for. That includes legal fees, accounting fees, and trustee fees. They could be flat rates, but often they’re billed hourly or as a percentage of your asset’s total.
Factors Influencing the Cost of a Trust
We’ve done our best to give you a range for the cost of a trust. But it’s not easy to lay out all the options here when you have so many variables to consider. Just for example, what if you wanted to transfer some property into the name of your spouse after you die? You’d have to pay appraisal and title change fees. You see? It’s all about what you have in your trust.
What should you know going in?
Here are the most common, the most applicable costs for a trust, no matter the size.
Legal Fees
First, the big one. Legal fees. It’s going to be one of your biggest costs to create a trust. But what do those fees include?
The attorneys you use will help you draft your trust agreement. You must get this right because it’s the foundation of your whole trust. Other costs include filing and registration of your trust, and the billable hours to oversee the creation process. Or maybe you need amendments or updates as laws change.
Again the more complex your trust, the higher your costs are likely to be.
Trustee Fees
If you’ve got a lot of assets, you’re going to want a professional trustee to manage your estate. But they will charge you for their services.
Often, this works out to be based on a percentage of your assets. Or in other cases, it’s a flat annual fee. These costs depend on your trustee's experience, responsibilities, and the size of your trust.
There is one factor that makes trustee fees get pretty expensive - ongoing maintenance. If you want your trustee to make investment decisions, buy and sell assets, or if you have specific goals, that’s going to bump up the price by a lot. The general rule is that the more your trustee has to do, the more they’ll charge. Makes sense, but there are a lot of clients who simply don’t think about these things.
Tax Implications
The size of your trust, as well as the assets in it, could leave you exposed to some estate taxes. Or the number of assets you put in could lower your own tax rate. There are a few tax peculiarities you should watch for when you make your trust.
Yes, you’re going to get tax advantages. But you might also leave your heirs with a whopping estate tax bill. This is going to take some planning. And that’s where the costs come in. A financial advisor will walk you through the tough stuff and help you make the right decision.
Also, just like trustees, you might have ongoing tax bills to think about. This will also cost you for filing annual tax returns and meeting reporting obligations.
The Process of Setting Up a Trust
Now that we’ve worked through the basic breakdown of costs, let’s just take you through a typical setup process. Each step takes some time and careful attention to detail. And with the right help, you can plan for any upcoming costs.
Initial Consultation
I hope you do more than just read this article to set up your trust. You should absolutely speak with a legal professional about what you want your trust to do. This is often called your initial consultation. In this meeting, talk about your goals, your net worth, your plans, and what your trust should do.
I know that the attorney will charge you hourly, but take your time in this meeting, You’re going to want to ask a lot of questions about your trust options. Your attorney will evaluate your situation and give you some guided recommendations on how you should protect your assets.
Drafting the Trust
Ok, now that you’ve done the first step, it’s time to make things official with a trust document. By now, you should know exactly what your lawyer will charge you to draft this all-important piece of paper.
Your attorney drafts the trust agreement exactly as you’d like it. But this could take several meetings and drafts to get right. But don’t worry because this is all so that your every wish is met and your every obligation is carefully laid out.
Funding the Trust
By this step, you’ve got a legally binding piece of paper that spells out everything you want your trust to do. Now, it's time to fund the trust. This just means you put everything of value that you want to protect into the trust.
To do this, you’re going to sign over all your assets from your name into the name of the trust. Your lawyer will make sure everything is titled correctly. These transfers can be costly, depending on how many assets you’d like to include.
Just one note here: don’t delay this step. Imagine that you didn’t properly transfer some assets into the trust. This leaves them unprotected, exposed to high taxes, and possibly put through probate if you pass away. That’s a lot of extra costs that you don’t need to pay if you do the transfer quickly.
Ongoing Costs of a Trust
We’ve hinted it at throughout this article. But let me spell it out clearly here. You’re going to have setup costs. And then you’ll have ongoing costs. Those two costs are typically quite different, again depending on what you’ve stored in your trust.
Annual Accounting Fees
Every year, you’re going to get an invoice from your estate planning professional. Before you panic, you should know that it’s completely normal to see this bill. What’s in here? All the accounting and compliance paperwork that you’re paying not to deal with.
Trusts have a legal duty to provide annual accounting reports. These reports are detailed records, financial statements, and tax returns for the year. Your financial professional should handle these responsibilities for you, and you’ll have to factor in their costs as an ongoing expense for your trust.
Trust Administration Expenses
This could be an expense. Or maybe it’s not applicable to you. What are you going to put in your trust? And is it hard to take care of?
If you’ve got a particularly complex set of assets, you’re going to have some costs to administer your trust. Plan to pay for asset management, legal reviews, trustee meetings, and updates.
But these costs are an absolute must if you want your trust to be successful. You can’t put too high a price tag to make sure your trust runs smoothly.
Ways to Minimize Trust Costs
So, by now you should know that your trust costs will be in the range of a couple thousand dollars to maybe 5 or 6-figures. But wait. Let’s figure out some ways you can save money on your trust without compromising the safety of your assets in your loved ones.
While we can’t support cutting corners for this all-important step, we do believe that you don’t always have to pay top dollar for what you’re after.
Choosing the Right Trust
You wouldn’t buy a Ferrari to haul lumber. So why would you get a complicated trust to handle a simple estate plan?
If you know exactly what you need, you can save a ton of cash by choosing the right trust for you. Pay for what you need, not what offers the most benefits, most of which you won’t ever need. This one step could potentially save you thousands in legal fees and ongoing costs.
Selecting a Cost-Effective Trustee
We suggest that you talk with more than one trustee option before you settle. You should compare their services, their price rates, and their experience before you sign your assets to them.
You might be able to save costs by negotiating a flat rate rather than a costly hourly price plan. Or maybe you get better deals from trustees in different areas. You just want to keep in mind how reliable and trustworthy they’ll be for your future and the future of your loved ones.
Understanding and Planning for Tax Implications
If you have a beating heart, you’re probably aware that you can be proactive about minimizing your tax. The same applies to your trust. You can take steps to cut your tax bill each year
There are a lot of tax professionals who specialize in trusts. And we’ve seen some great strategies to lower your yearly tax bill. Talk with your financial planner to see what options you may have.
The Cost of a Trust: Last Thoughts
The idea of trust is to save money, but you’re going to have to spend something to make that happen. You’ll get protection, security, peace of mind, but all of that comes at a cost. As long as you’re well informed walking into the process, we’re confident that you’ll find the right trust at the right price for you.
But we should also remind you that while it’s easy to get bogged down in the prices and costs, a trust has a higher purpose. You don’t want to leave your loved ones stranded and alone. Your trust is designed to protect your wealth so that they’re looked after long into the future.
And how can you put a price on that?
