Retirement, Investments, & Insurance for Individuals Build your knowledge Do you need (or want) a trust in your estate plan?

Do you need (or want) a trust in your estate plan?

What’s a trust? Do you need a trust if you have a will? Learn how this estate planning option can benefit you and your family—now and in the future.

Photo of a couple that has decided they need a personal trust as part of their estate plan.
6 min read |

Most of us put off formalizing instructions for after we die. In fact, two-thirds of Americans don’t have any estate planning documents at all.(1) That shortfall may have unexpected consequences for your wishes and the people you leave behind.

A will remains familiar to many—even if most of us don’t have one. But a trust can be an additional useful tool to carry out your plans, especially if you value privacy or have specific wishes for your assets. Here’s an explainer, including the benefits of a trust in your estate plans.

What is a personal trust?

A personal trust is a legal structure. You transfer ownership of your assets into the trust, continue to enjoy them, and define what happens to those assets under certain circumstances or upon your death.

What does a trust allow you to do?

With a trust, you can do a number of things.

  • Name a trustee or custodian to carry out the trust’s terms.
  • Control exactly what happens to your assets.
  • Specify how inheritances are distributed (for instance, limiting a young person’s access or specifically paying for their education).
  • Outline steps to take if you become incapacitated.
  • Protect something you treasure in a divorce.
  • Avoid or reduce estate taxes as well as the time and cost of probate.
  • Take the burden of decision-making off your family.

What are the different types of trusts?

There are three common types of trusts. Here’s how each works:

  • A testamentary trust is set up in a will. Upon your death, the trust receives assets from your will.
  • A revocable living trust has the most flexibility. You can change what’s in it, who manages it, and who the beneficiaries are.
  • An irrevocable living trust is usually used to reduce the amount of assets subject to estate tax.(2)  Once you’ve established and funded it, generally it can’t be changed.

Some additional trusts include a special needs trust, which helps take care of the beneficiary without jeopardizing their access to government benefits, and an irrevocable life insurance trust, when the death benefit from your life insurance policy is passed through the trust to its beneficiaries.

Why do I need a trust when I can just pass along assets with a will?

With a will, leaving money or belongings to anyone other than a spouse can be complicated, and your wishes may not be followed to the letter. A will is also probated, or legally validated in court, so it becomes part of public record; that can be long and expensive, and you may not wish to have the details released. Using a trust, you can avoid some of those risks.

What's next?

If you’re reviewing your estate plan, it’s a great time to review your beneficiaries, too. Log in to principal.com to get started. Don’t have an employer-sponsored retirement account or want to save even more? We can help you set up your retirement savings with an individual retirement account (IRA). Ready to learn more ways you can build your financial foundation? Our learning library can help.

Caring.com 2023 Wills Survey. If passed by Congress, the Reconciliation Bill may increase restrictions on trusts, particularly when it comes to avoiding estate taxes.