By Jacob I. Rosenberg, CPA, PFS, CFP®
There’s no doubt about it: trusts certainly don’t get as much attention as Wills do. But they’re incredibly powerful tools for anyone looking to protect their assets and preserve their wealth—especially if you have significant assets to manage.
Trusts offer a host of features that can be tailored to your unique family situation and financial goals. They aim to help you skip over the lengthy (and often costly) probate process, cut down on taxes and safeguard your assets from unexpected claims—such as those from creditors or dissolution of marriage. Whether it’s establishing a stable financial future for your children or supporting your community long after you’ve gone, the right trust can make it happen.
Let’s take a closer look at the more common types of trusts—from Irrevocable Trusts to Charitable Remainder Trusts—to learn how each can be strategically used to safeguard your assets, reduce your tax burden, and uphold your financial wishes across generations.
What is a Trust?
Simply put, a trust is a legal arrangement where one person (the trustee) holds and manages assets for the benefit of another (the beneficiary), following specific terms outlined in a Trust document. Setting up a trust allows you to specify how and when your assets are distributed, which can help provide your beneficiaries with financial stability and support according to your wishes.
Control Your Wealth, Your Way
By setting up a trust, you gain the ability to specify how your assets are handled and passed on. You’re essentially setting the rules for who gets what, when, and under what conditions—even if you’re not here to see it through. This level of control helps you direct your wealth according to your wishes and allows your generosity to impact generations to come. You can also set conditions that beneficiaries must meet to receive their inheritance, which can help foster responsible behavior or achievement, such as completing an education milestone or reaching a certain age.
Shield Your Assets
If you’re looking to safeguard your family’s future, then establishing an irrevocable trust can be crucial. That’s because this type of trust typically protects the assets placed within it from creditors and legal judgments. When you move your assets into an irrevocable trust, they’re no longer part of your personal property. This setup can effectively shield your assets from any claims against you or your estate, allowing your wealth to remain with your intended beneficiaries.
Plus, since the trust is its own legal entity, any accrued income is taxed separately from your personal taxes. This can be an effective wealth transfer strategy, especially since the beneficiaries (like your children) might be in lower tax brackets and could pay less taxes.
Manage Estate Taxes
Speaking of taxes, more sophisticated planning becomes essential when your estate approaches or exceeds the federal estate tax thresholds—$13.61 million as of 2024. By strategically placing assets in certain types of trusts, you can reduce the amount of estate tax that your heirs might have to pay.
For example, an irrevocable life insurance trust (ILIT) is useful because it allows the policy’s death benefits to be excluded from the insured’s taxable estate. The insured may gift (or loan) money to the trustee, who will then use those funds to pay the premiums. When properly designed and administered, a gift to the ILIT may escape the federal gift tax as well. That being said, trusts can be complex, so it’s important to consult with your trusted tax professional when considering trusts as a potential tax strategy.
Potentially Avoid Probate
Another important feature of trusts is their ability to bypass the probate process. You may already be well aware that probate can be costly and time-consuming—and it also exposes the financial details of the deceased to the public. A trust can be a valuable asset for those who value their privacy. The distribution of assets is kept completely confidential and can speed up the final transfer to beneficiaries.
Handle Assets When You Can’t
If you become incapacitated, a trust can help manage your assets without the need for court intervention. Once you designate a successor trustee, they can take over managing the trust. This allows your assets to be handled according to your wishes without interruption, so you can rest assured they are effectively cared for—even if you are unable to do so yourself.
Preserve Wealth for Future Generations
It’s clear that trusts can be created to benefit future generations, which can extend to your community or causes closest to your heart. The most common is a charitable remainder trust (CRT) which is a type of trust in which you, as the grantor, can retain an income interest in the property placed into the trust. In this case, you can receive income for a certain period or until you pass away. Once the income term expires, the remaining property in the trust is passed to the charity of your choice.
Because the trust beneficiary is a charity and the trust is irrevocable, you can receive an immediate charitable deduction to assist with your income taxes. For this reason, it’s best to transfer highly appreciated assets to the CRT to maximize your deduction.
Adjust Your Trust As Needed
We haven’t covered the features of a specific type of trust called a revocable, or living trust.
Revocable trusts, often called living trusts, are quite popular in estate planning. This type of trust allows you to maintain control over your assets since you can alter or dissolve the trust at any time. However, this flexibility comes with limitations when it comes to asset protection and wealth preservation. Assets held in a revocable living trust remain accessible to creditors and are included in the grantor’s taxable estate.
Explore Your Trust Options
While trusts might not get the headlines that Wills do, they offer powerful features for anyone serious about protecting their assets, preserving their wealth, and leaving a legacy.
If you’re curious about how a trust could fit into your financial plans or just have some questions, our team at Bernath + Rosenberg is here to help.
Whether it’s setting up trusts for wealth protection and transfer or working with you to extend your values in your legacy plan, we will design a plan tailored to your needs. To schedule a meeting, call (212) 221-1140 or email [email protected].
About Jacob
Jacob Rosenberg, CPA, PFS, CFP®, is a co-founder and partner at Bernath + Rosenberg, a full-service accounting, tax, and wealth management firm with offices in Monsey, NY, Lakewood, NJ, Cedarhurst, NY, and Miami Beach, FL. The firm demonstrates a personalized approach to custom-tailored solutions and an unwavering commitment to client service. With over 35 years of experience as a Certified Public Accountant (CPA), Jacob oversees the firm’s wealth management division and specializes in working with business owners and affluent families.
For the ninth year in a row, Bernath + Rosenberg has been named as one of the leading CPA firms in financial planning by Accounting Today, a publication that receives hundreds of submissions each year and features the Top 150 Firms in the nation. Jacob is a CERTIFIED FINANCIAL PLANNER™ practitioner and holds the Personal Financial Specialist designation from the American Institute of Certified Public Accountants (AICPA). To learn more about Jacob, connect with him on LinkedIn.
