When you hear the term "trust fund," does your mind go straight to the ultra-wealthy? If so, you’re not alone! There’s a common misconception that trust funds are exclusive financial tools for the elite — something far beyond the reach of the average entrepreneur. But in reality, trusts are a valuable tool for anyone looking to protect and pass on their wealth effectively. Whether you're building generational wealth or simply want to secure your assets for your loved ones, understanding how a trust works and how it differs from a will can make all the difference.
Today, we’re showcasing insight from Diana Khan, attorney and founder of DK Law Group. Diana speaks from both personal and professional experience, having helped both her own family and innumerable clients navigate the often murky waters of estate planning. Believe it or not, preserving your legacy might be easier than you think. Let’s dive in!
What Is a Trust Fund?
“In my world, everybody's born with a backpack. Everything you make in your life goes in this backpack… the idea of a trust really is very simple. You come into a lawyer's office and you say, I've got my backpack… I want to do things better for my kids. What do I do? And a lawyer says, I'm going to build you a new backpack… you get to invent it from scratch.”
Diana provides this incredible analogy to demonstrate what a trust fund actually is — a legal entity created to hold and manage assets on behalf of a beneficiary. Think of it as a personalized financial structure where you can specify how, when, and to whom your assets will be distributed after you're gone. Unlike a will, which simply lists who gets what, a trust gives you much more control over how your wealth is passed on.
The Key Differences Between a Trust and a Will
“With a will, your kids have to take this backpack to the courthouse and say, ‘Here's my mom's stuff. Help me open it.’ With a trust, your kids can pick up the bag. It was theirs to begin with. There's no probate. There's no taxes. They can open the bag the moment I die, and they're good.”
While both wills and trusts are designed to distribute assets after your death, there are crucial differences in how they work. A will goes into effect only after you die and often requires a lengthy probate process, where a court oversees the distribution of your estate. This can take months or even years, leaving your loved ones waiting to access the money or assets they need.
In contrast, a trust takes effect as soon as it’s created and doesn't require probate. This allows your heirs to access funds more quickly and without the complications of court proceedings.
Why You Should Consider Setting Up a Trust — Even If You’re Not “Filthy Rich”
“Regardless of what I die with, I know that whether or not they liked me or not… I've set it up in a way that the money is going to be available for them. And you can write whatever instructions you want.”
One of the biggest misconceptions about trusts is that they’re only for the very wealthy. In reality, anyone with assets to protect — whether it's a home, a business, or savings — can benefit from setting up a trust. Trusts aren’t just about passing on massive wealth; they’re about ensuring that what you’ve worked hard to build continues to benefit your loved ones long after you're gone.
Trusts also provide flexibility and control. You can specify how much money should be distributed at different life stages, such as funding education, home purchases, or retirement.
Steps to Start the Process of Creating a Trust
"When you have a trust set up accurately, there are definitely ways that you can protect your family from a lot of that debt… With probate, I charge hourly and you pay me over the course of a year and a half. With a trust, you pay me upfront to create it."
If you’ve never thought about setting up a trust before, the process might seem overwhelming. But it’s easier than you think, especially if you break it down into manageable steps.
Assess Your Assets: Start by taking stock of what you own — this includes your home, savings, investments, and any business interests. These are the assets that will go into your trust.
Choose a Trustee: This is the person or institution that will manage the trust and ensure your instructions are followed. It can be a family member, trusted friend, or a professional trustee.
Decide on Beneficiaries and Distribution: Decide who will benefit from your trust and how you want the assets to be distributed. You can set conditions for when and how beneficiaries receive their share.
Consult an Attorney: Setting up a trust is a legal process, and working with an attorney will ensure everything is properly documented. Trusts can be revocable (meaning you can change them during your lifetime) or irrevocable (meaning they can’t be altered after they’re set up).
Protecting Your Legacy for Generations to Come
“If somebody in America dies with a will or without a will, it doesn't really matter. The first generation, meaning your children, will blow through the money that's left over in three years from the time you die. With a trust, the third generation after you die still has 30% of the income you generated in your life.”
Whether you’re a seasoned entrepreneur or just starting to accumulate wealth, setting up a trust isn’t something to leave for later in life. By taking steps now, you can ensure that your assets are protected from lawsuits, taxes, and other financial drains — and that they’ll continue to benefit your loved ones for generations.
…Class Dismissed!
Do you have assets to pass down? Trusts aren’t just for the 1% — they’re a powerful way for anyone to secure their financial legacy. Whether you're an entrepreneur with multiple businesses or someone who simply wants to make sure your family is taken care of, a trust can provide peace of mind, flexibility, and long-term financial protection.
In short, setting up a trust now could save your family unnecessary stress — and ensure that the wealth you’ve worked so hard to create continues to have a positive impact well into the future.
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