At what net worth do you need a living trust?

When people are thinking about estate planning, a common misconception is that you do not need a living trust unless you are wealthy.

Not true!

A trust can be an extremely useful estate planning tool if you have a net worth of $100K or more, have substantial real estate assets, or are planning for end-of-life. Trusts are also great options for minimizing estate taxes, protecting your estate from lawsuits and creditors, providing financially for minor children or those with special needs, or in case you become incapacitated and can no longer make decisions on your own.

A will and a trust are similar in that they both direct the disposition of your assets after your death. However, a will only goes into effect after you have died. A trust, on the other hand, is a legal vehicle that provides asset management during your lifetime. In California a will has to go through the probate process if the total value of assets exceeds $184,500. Probate can be time-consuming and costly, and a will is public record. Currently the California probate code threshold is $184,500.

Other factors to consider if you have a net worth less than $184,500 are specificity about who will inherit what and when, or if you want to pass assets on to your grandchildren. 

You don’t need a living trust if…

What are some of the reasons you don’t need a living trust? If you are:

  • Single
  • Have no children
  • Have little or no assets
  • A middle income individual under the age of fifty-five and in good health
  • Net worth is <$184,500 (total value of all real property and personal property)

If you are in one of these groups, you can always consider setting up a living trust down the road. Additionally, there are new strategies for avoiding probate that have become more acceptable over the past 10 years.

Advice for everyone else

Many advisors and attorneys recommend a $100K minimum net worth for a living trust. However, there are other factors to consider depending on your personal situation. What is your age, marital status, and earning potential? At what point in time will your focus shift from wealth creation to wealth preservation? What options do you have to protect your assets from creditors and lawsuits?

Trusts are flexible, varied, and complex, and each type has advantages and disadvantages. For answers to these and other living trust questions such as what are examples of assets that shouldn’t be in your living trust, peruse our website or contact our office.