Should You Create a Family Trust? The Pros & Cons for Retirement Wealth Management

Estate Planning | by Jules Buxbaum | Wednesday, February 26, 2025

Family trust planning sparks mixed feelings for retirees who want to protect assets and streamline retirement wealth management. Some see trusts as a powerful vehicle for safeguarding an estate, while others worry about complexity and possible costs.

Yet in the United States, only 24% of survey respondents in 2025 said they have a will, and even fewer hold trust documents—a trend seen across many states (estate planning laws in states like New York, North Carolina, and Florida also play a part)1. In this article, we’ll explore the pros and cons of setting up a trust, the role trusts can serve in retirement, and how to decide if this option is right for you.

What Exactly Is a Family Trust?

A family trust is a structure in which a trustee holds legal title to assets for beneficiaries. The person creating the trust, called the grantor, can set guidelines on how to manage and distribute money or property.

Grantors often choose between a revocable trust or an irrevocable trust. A revocable trust can be altered during the grantor’s lifetime, while an irrevocable trust typically cannot be modified without beneficiary permission.

Why Trusts Matter in Retirement Wealth Management

During retirement, income streams shift from employment wages to Social Security, investments, and pensions. A trust can provide protection of these assets and maintain control of distributions across generations.

In fact, the trust and foundations market size is growing, from $173.88 billion in 2024 to $184.49 billion in 2025 at a 6.1% compound annual growth rate (CAGR)5. This suggests rising interest among families who want a more formal method for managing retiree accounts and investments.

Asset Protection and Potential Tax Perks

Some trust structures shield assets from creditors, lawsuits, or costly probate. Irrevocable trusts, for example, remove assets from your taxable estate, which might lower estate taxes if you exceed certain thresholds.

Trusts can also help organize retirement distributions in tax-advantaged ways. By splitting distributions among beneficiaries who have lower tax rates, the family unit can potentially reduce its total tax liability.

Should You Create a Family Trust? The Benefits

Trusts help people who want to preserve wealth and set defined inheritance rules. They can also reduce probate delays, eliminating a process that often takes months or even years.

Another clear benefit is privacy. Unlike wills, trusts typically remain confidential, protecting details about who inherits what. This can minimize public scrutiny of your finances.

Some families rely on trusts to handle generational wealth transfers. According to a study from the Williams Group, about 70% of wealthy families lose their wealth by the second generation. Structured trusts provide guardrails that can help mitigate that decline.

Moreover, for those anticipating a higher rate of return from equities to secure a comfortable retirement, it might be appealing to keep assets consolidated in a trust. This approach can align with 2Pi Financial’s philosophy that an equity-driven strategy often outperforms more conservative allocations over the long run.

Reducing Probate Headaches

Probate can consume 3% to 7% of an estate’s value in court fees and legal costs, with delays of 9 to 24 months in some states. Assets inside a trust sidestep that, allowing faster distribution to heirs.

Avoiding probate is especially critical for those who own property in multiple states. Without a trust, you could face separate probate proceedings, adding even more expenses and stress.

The Drawbacks of a Family Trust

One main concern: cost. An attorney might charge thousands of dollars to draft trust paperwork, depending on complexity. There may be ongoing fees for administration, tax returns, or professional trustees.

Trusts also require upkeep. You’ll need to retitle most assets in the trust’s name, which some find cumbersome. If critical assets remain outside the trust, they could still go through the probate process you’re trying to avoid.

It’s also possible to lose direct control. Once you make an irrevocable trust, you typically can’t revoke or amend it. That permanence can be tough if life circumstances or relationships change.

Tax Advantages Are Not Guaranteed

A trust doesn’t always translate to big tax savings. With revocable trusts, you still pay taxes on trust income as if you own the assets personally.

Also, no trust structure can bypass basic estate tax laws entirely. If your estate surpasses certain limits, advanced planning might still be needed to reduce estate taxes meaningfully.

Key Considerations Before Creating a Trust

Deciding whether a family trust fits your retirement plan involves more than just reading an article. You need to weigh your net worth, family dynamics, and long-term objectives.

Consider asking: “Is probate a big concern?” “Are my assets at risk from lawsuits or creditors?” “Do I want to place restrictions on how heirs use their inheritance?”

Age matters, too. Someone nearing retirement might be in a different financial phase than a young professional with four decades to build wealth. The time horizon for assets to grow inside a trust can shape your decision.

Which Type of Trust is Best?

A revocable trust works well if you prefer flexibility and want to maintain full control of your assets. However, it offers limited protection from creditors.

An irrevocable trust provides stronger asset protection and can remove assets from your estate, but you give up significant power to change terms. That can create tension if your future priorities shift.

Don’t Overlook Trustee Selection

Your trustee executes distributions, manages tax filings, and handles beneficiary issues. If you pick a family member who is unprepared, it could lead to asset mismanagement or legal disputes.

Professional trustees—such as trust companies—help carry out your instructions impartially but charge management fees. Balancing costs with dependable expertise is crucial for many families.

Integrating a Trust with Retirement Accounts

Did you know trusts and IRAs don’t always blend seamlessly? For instance, naming a trust as an IRA beneficiary might shorten the timeframe beneficiaries have to withdraw funds due to changing rules.

To learn more about structuring beneficiary designations, check out our brief piece on beneficiaries and payouts in retirement accounts. Setting these details correctly can mean the difference between a well-orchestrated transfer or a complicated tax situation.

Coordinating Required Minimum Distributions

Once you reach the age when required minimum distributions (RMDs) kick in, your trustee might need to calculate those exactly for any retirement accounts. Some trusts face compressed tax brackets, resulting in higher tax if income remains undistributed.

It’s vital to draft trust provisions carefully to address RMD rules. Failing to do so can generate additional penalties or accelerate withdrawals in ways you didn’t intend.

Working with Advisors to Craft the Right Strategy

Estate attorneys, tax specialists, and financial planners each play a role. Collaborating with a dedicated team can help you set realistic goals and confirm if a trust is the best fit.

We encourage you to see how advanced retirement planning tools can forecast your future. Our proprietary solution, the 2Pi Financial Planner (https://www.2pifinancial.com/2pi-financial-planner), shows how changes in retirement age, risk tolerance, or savings rate can affect projected outcomes. You can even test different asset allocations to see how a trust might improve long-term results.

Aligning Your Risk Strategy with Trust Planning

Some individuals go too conservative with investments, even though historical equity performance has been strong for decades. If you create an irrevocable trust that invests heavily in bonds, you might limit growth more than you intended.

At the same time, if your future earnings are modest, you might need higher growth potential from equities. This approach aligns with 2Pi’s view that portfolios commonly require a bigger equity stake to comfortably fund retirement.

Common Misconceptions about Trusts

One myth is that trusts are only for the ultra-rich. In reality, moderate-income families also use trusts to control how kids or grandkids inherit wealth and avoid lengthy probate.

An additional misconception is that trust creation is too complicated unless you have a law degree. However, a concise framework from an estate attorney, plus online resources, can clarify the setup.

Trusts Only Suit Large Estates?

While high-net-worth households often benefit most, smaller estates can still find value in a living trust if they own a house, expect real estate appreciation, or have complicated family situations.

Yet if you have few assets and zero concerns about probate, a trust might not justify the expense. In these cases, a standard will could be enough.

Frequently Asked Questions (FAQ)

Q: How much does it typically cost to set up a trust?
Costs range widely, from $1,500 for simpler revocable trusts to over $10,000 for complex irrevocable ones. More complex situations require additional administrative fees.

Q: Can I fund my retirement accounts directly into a trust?
Generally, IRAs and 401(k)s are not retitled into a trust’s name while you’re alive. Instead, you can name the trust as a beneficiary. That approach has tax implications worth reviewing with a specialist.

Q: Will a trust save me taxes?
It depends on your net worth, trust design, and local regulations. Irrevocable trusts can offer estate tax benefits if your assets exceed certain thresholds, while revocable trusts normally don’t.

Q: Do I really need a professional trustee?
A family member can serve, but the job has legal and financial duties that can be difficult. Professional trustees bring expertise but add costs, so weigh both sides carefully.

Bottom Line

Weigh the positives of privacy, probate avoidance, and long-term security against fees and lower flexibility. A trust can be a powerful vehicle—but it’s not a “one-size-fits-all” answer.

If you decide to move forward, naming the right trustee and keeping an eye on tax rules are essential. For more insights into advanced legal structures, see our guide on legally reducing estate taxes with advanced strategies. By combining smart estate planning with a realistic retirement outlook, you can create a lasting wealth framework that benefits both you and your heirs.

References

1. Caring.com. (2025). “Wills Survey: Estate Planning Trends & Insights.” Available at: https://www.caring.com/caregivers/estate-planning/wills-survey

2. Williams Group. (2024). “Multigenerational Wealth Report.” Available at: https://www.thewilliamsgroup.org

3. National Association of Estate Planners & Councils. (2024). “Probate Costs & Timelines.” Available at: https://www.naepc.org

4. IRS. (2019). “Estate Tax Filing Statistics.” Available at: https://www.irs.gov

5. The Business Research Company. (2024). “Trust & Foundations Global Market Report.” Available at: https://www.thebusinessresearchcompany.com