What Is a Trust Fund? What It Does, What It Costs, and Who Actually Needs One

The Million Dollar Question: In 2026, at what level of taxable income does a trust start paying the top 37% federal rate?
A) $640,600 B) $250,000 C) $89,000 D) $16,000

Read on for the answer.

Search “what is a trust fund” and much of the first page belongs to companies that sell insurance, annuities or investment products — MetLife and Nationwide among them — alongside legal publishers and a credit bureau. Most of them write a competent explanation. Few of them are disinterested.

That is not an accusation, it is a description of who writes about this subject and why. The honest version includes the parts that cost somebody a sale, so that is the version here.

Nobody counts trust funds, including the people who sell them

Start with the thing almost every article gets wrong.

You will often read that about six per cent of American families have a trust. The number comes from the Federal Reserve’s Survey of Consumer Finances, where 6.2% of families held “other managed assets” in 2022, up from 5.9% in 2019. It rises steeply with wealth: 1.8% of families in the 25th-to-50th percentile of net worth, 14.2% in the 75th-to-90th, and 21.1% of the top decile.

But read the Fed’s own definition. Other managed assets covers “personal annuities and trusts with an equity interest and managed investment accounts” — and specifically those “for which components were not separately reported.” A standard revocable living trust holding a house and a brokerage account gets reported component by component: the house under primary residence, the account under stocks. It generally does not enter the 6.2% at all — the category is aimed at holdings where, in the Fed’s framing, the ownership is complicated or the management is professional.

So the figure is not a count of trusts. It is closer to a count of beneficial interests in trusts somebody else manages.

The IRS number fails in the opposite direction. The Treasury’s own paperwork estimate, updated in July 2025, puts 3,240,000 respondents on trust and estate income tax returns. But a revocable trust generally files no return of its own while its creator is alive — under 26 U.S.C. § 676 the grantor is simply treated as the owner, and the income goes on their personal return. The most common kind of trust fund in America is invisible to the agency that taxes it.

Two authoritative datasets, both excluding ordinary living trusts by design, bracketing the real number from below. Nobody knows how many trust funds there are. A private instrument that requires no registration is not counted anywhere, which is part of the appeal.

What a trust fund is, in plain terms

A trust is a set of instructions attached to property. One person (the settlor, or grantor) transfers assets to a second (the trustee) to hold under written terms for a third (the beneficiary). All three can be the same person at the start, which is exactly how a typical living trust begins.

The distinctions that matter are two, and they are not the same distinction.

Living versus testamentary is about when it begins. A living trust is funded while the settlor is alive. A testamentary trust is created by the will — which means the will has to be probated for the trust to exist. A testamentary trust does not avoid probate. It is a product of probate.

Revocable versus irrevocable is about whether it can be undone. And the default depends entirely on where you live. Under the Uniform Trust Code and in California, a trust is revocable unless the document says otherwise. In New York, EPTL § 7-1.16 runs the other way: “A lifetime trust shall be irrevocable unless it expressly provides that it is revocable.”

Identical silence in an identical document produces opposite results in the two largest states for private wealth. That is worth absorbing before reading anything general about trusts: roughly thirty-six states and jurisdictions had adopted some version of the Uniform Trust Code as of 2022, by the ACTEC Foundation’s count — and California, New York and Texas are not among them.

For the specific vehicles — dynasty trusts, GRATs, IDGTs, ILITs, charitable remainder trusts, domestic asset protection trusts and offshore trusts — each has its own entry. This page is about the ordinary case.

What a revocable trust does not do

This is the section the insurer pages skip, and every item has a statute behind it.

It does not, by itself, remove anything from your taxable estate. 26 U.S.C. § 2038 pulls back into the gross estate anything the decedent could “alter, amend, revoke, or terminate” at death. That is the definition of a revocable trust. Revocable trusts routinely contain sub-trusts that do reduce a married couple’s combined estate tax — but so can a will. The container is not what saves the tax; the provisions inside it are.

It does not change who pays income tax. Under § 676 the grantor is the owner. The trust’s income is the grantor’s income, on the grantor’s return, at the grantor’s rates.

It does not protect anything from your creditors. California Probate Code § 18200 is explicit: where the settlor retains the power to revoke, “the trust property is subject to the claims of creditors of the settlor to the extent of the power of revocation during the lifetime of the settlor.” The Uniform Trust Code says the same in § 505(a)(1). A revocable trust is, for creditor purposes, still your money — because it is.

It does not shelter assets for Medicaid. 42 U.S.C. § 1396p(d)(3)(A) treats the whole corpus of a revocable trust as a resource available to the individual.

And in at least one state it does not even avoid the probate fee. Connecticut’s Probate Court Administrator states on the front page of its own user guide that “probate fees are calculated on the value of the estate of a decedent, whether or not the estate is administered in a Probate Court.” Fifteen pages later it answers the question directly: fees are “based on all assets in which the decedent had ownership, whether or not the assets are part of the probate estate.” The same guide requires an estate tax return for every estate “regardless of value,” within six months of death.

A Connecticut living trust is sold, as everywhere, on avoiding probate. It does not reduce the probate court’s fee by a dollar.

What a revocable trust does do is real but narrower than advertised: it keeps the assets actually retitled into it out of the probate process, it keeps the terms private where a probated will is a public record, and it provides a mechanism for someone to manage your affairs if you become incapacitated without a court-appointed conservator.

Going irrevocable buys more, and costs more than the fee. Assets genuinely removed from the estate lose the step-up in basis at death — Revenue Ruling 2023-2 confirmed that property given away in a completed gift gets no adjustment to fair market value. With the exemption where it now is, moving appreciated assets out of an estate to dodge a tax that estate was never going to pay can hand your heirs a capital gains bill they would otherwise never have seen. Medicaid’s look-back on such transfers is sixty months.

Trust fund versus will: what each one actually handles

They are not substitutes, and anyone with a trust almost certainly also has a will.

A will disposes of property held in your own name, nominates an executor, and — the function people most often cite — lets a parent nominate a guardian for a minor child. Be careful with that last one, because the marketing overstates it. In California, § 1502 says the nomination “may be made in the petition for the appointment of the guardian or at the hearing on the petition or in a writing signed either before or after the petition … is filed” — a will is one such writing, but it is not the only one. And a nomination is a nomination: the court appoints. What is true is that a trust does not itself appoint anyone, and that the instruments available vary by state.

A trust governs only the property actually retitled into it. Anything you forgot to move is still in your own name at death, and passes under your will or by intestacy.

Which is why the pour-over will exists, and why its existence is the most revealing document in the whole arrangement. California Probate Code § 6300 specifically validates a gift by will to the trustee of a trust the testator already created, so that stray assets fall into the trust at death. The legislature wrote a statute to catch the leftovers because the drafters assumed, correctly, that trusts get under-funded. The system has a patch built in for its own most common failure.

The honest summary: a will alone means probate. A trust alone means probate for whatever you missed. Most people with a trust have both, and the trust only works to the extent somebody did the unglamorous work of retitling the house, the accounts and the business interest.

What it costs to set up — and what it costs every year after

Setting one up means hiring a lawyer, inventorying what you own, deciding the terms, signing, and then — the step people skip — actually retitling assets into it.

There is no neutral price survey. No bar association or agency publishes drafting fees. The best structured dataset comes from LegalTemplates, published in March 2026, which contacted 2,469 law firms and got pricing from 909 of them: a national median of $625 for a will and $2,475 for a revocable living trust, with a trust package for a couple at $3,000. Treat that with the same scepticism as the insurer pages — LegalTemplates sells DIY legal forms and has an interest in attorney fees looking steep. Their own finding is the useful part: “Pricing differences between law firms within the same state often exceed differences between states.”

Most people serve as their own trustee and pay nothing for the privilege. Where a corporate trustee is appointed, the fees are published and steep. SECU’s trust services schedule, effective April 2024, with services provided through Members Trust Company, runs 1.25% on the first million, with a $250,000 account minimum and a $2,500 minimum annual fee. A $500,000 trust there pays $6,250 a year — about $62,500 over a decade, roughly twenty-five times what the document cost to draft.

Then there is tax compliance. The IRS’s own burden estimate for trust and estate returns, in its July 2025 notice, is 33,700,000 hours and $6.139 billion in out-of-pocket costs across 3.24 million filers, which works out to roughly $1,900 per filer per year. In tax year 2022, American trusts and estates deducted $7.66 billion in fiduciary fees and $7.05 billion in attorney, accountant and preparer fees on Form 1041.

And then the tax rates themselves, which bring us to the question at the top. The answer is D: $16,000.

Under Revenue Procedure 2025-32, a trust or estate in 2026 pays 10% to $3,300, 24% to $11,700, 35% to $16,000, and 37% on everything above $16,000. A single filer does not reach 37% until $640,600. A married couple filing jointly, not until $768,700.

A trust hits the top federal rate at one-fortieth of a single person’s income, and one forty-eighth of a couple’s. The 3.8% net investment income tax arrives at the same $16,000, against $200,000 for an individual — a threshold enacted in 2010, effective from 2013, and never indexed since. And where an individual gets a $16,100 standard deduction, a trust gets a “personal exemption” under § 642(b) of $100 — $300 if it must distribute all income currently, $600 for an estate. Those figures are not indexed either.

This is why income usually gets distributed out of trusts rather than accumulated in them, and why a trust holding undistributed income is an expensive place to keep money.

Probate: the thing a trust is sold to avoid

You will read everywhere that probate costs three to eight per cent of an estate and takes nine to twenty-four months. We could not source either claim to any government, court or academic publication. Every instance we could trace ran back to law-firm or estate-technology marketing. What exists instead is statute, and it varies enormously.

California publishes exact percentages, and a detail most summaries miss. Probate Code § 10810 sets the attorney’s fee at 4% of the first $100,000, 3% of the next $100,000, 2% of the next $800,000 and 1% of the next $9 million. Section 10800 gives the executor the identical schedule. Both are computed on the value of the estate accounted for “without reference to encumbrances.” A $1,000,000 house carrying a $700,000 mortgage generates fees on a million dollars, not on $300,000 of equity — and the schedule can be taken twice, once by the executor and once by the executor’s lawyer. On a $1,000,000 estate that is roughly $23,000 each.

Maryland charges a register-of-wills fee of nothing at all below $50,000, $200 between $100,000 and $500,000, and $2,000 on an estate between $1 million and $2.5 million — though the personal representative’s commission under § 7-601 is a separate and much larger number: $1,800 plus 3.6% of the excess over $20,000.

Connecticut caps its probate fee at $40,000 however large the estate — and charges it, as above, whether or not a trust holds the assets.

Three states, three unrecognisably different answers. “Probate costs 3–8%” is not a national fact. It is a California-shaped fact.

Duration is worse: no state judiciary we examined — Texas, Connecticut or California — publishes a mean time to close a decedent’s estate. The defensible anchor is statutory. California gives creditors four months to file claims under § 9100, and § 12200 requires the personal representative to either petition for final distribution or file a report on the status of administration within one year of letters being issued — eighteen months if a federal estate tax return is due. California’s own statute treats a year as the outer bound before the court wants an explanation.

And the simplest route around probate is often not a trust at all. California’s affidavit procedure now reaches estates whose qualifying real and personal property totals up to $208,850, and for deaths on or after 1 April 2025 the simplified court petition for a decedent’s primary residence jumped from $184,500 to $750,000 — a more than fourfold increase, per the Judicial Council’s form DE-300. Retirement accounts and life insurance pass by beneficiary designation and never touch probate. Survivorship-titled property passes automatically. And thirty-two American jurisdictions now authorise a transfer-on-death deed for real property, which does for one house what people are routinely sold a whole trust to accomplish.

That simplified petition is still a court petition, filed forty days after death and set for a hearing — it is not an escape from the courthouse. But for a great many Californian families whose main asset is a home worth under three quarters of a million dollars, the central argument for buying a living trust weakened considerably in April 2025.

What people get wrong

That “6.2% of Americans have a trust” is a measurement. It is a Federal Reserve category that excludes ordinary revocable trusts by construction. The real number is unknown, and both authoritative datasets understate it.

That the 2026 estate tax cliff arrived. For two years the planning world warned that the exemption would halve to roughly $7 million at the end of 2025. It did not happen. 26 U.S.C. § 2010(c)(3) as amended in 2025 sets the basic exclusion at $15,000,000; the subparagraph that carried the sunset was struck out, and what remains indexes the figure from a 2025 base with no expiry written into the statute. The GST exemption matches it and the annual gift exclusion is $19,000. Congress can change this at any time, and anything written before mid-2025 should be read with the date in mind. For scale: 8,130 estate tax returns were filed in filing year 2022, against roughly 3.07 million American deaths in 2024 — about one death in 378.

That a trust is private, therefore the trust document is secret from everyone. Privacy from the public record is real. Privacy from a trustee, a bank, a court in litigation, or the IRS is not.

That “irrevocable” means safe. It means you no longer own it. Those are different sentences, and the second one has consequences — lost basis step-up, a sixty-month Medicaid look-back, and compressed brackets on anything the trust keeps.

That the free seminar is educational. The deepest regulatory look at this is now old, which is itself a finding. A joint SEC, NASAA and FINRA examination covered 110 branch-office examinations of firms running “free lunch” sales seminars for older investors — not trust seminars specifically, but the same format. Examiners found that in 57% of cases the materials “may have been misleading or exaggerated or included seemingly unwarranted claims,” that 23% showed “indications that” unsuitable recommendations had been made, 13% showed possible fraudulent practices — and that 5 of the 110 produced no findings at all. California’s Attorney General separately settled for $7.2 million with operators who offered seniors free estate planning, had non-lawyers prepare living trust documents, and used the financial information gathered to sell annuities with surrender periods up to fifteen years. Both are from 2006–2007. No comparable free-lunch sweep has been published since; the nearest successor, the SEC and FINRA’s 2015 National Senior Investor Initiative, found firms still using seminars to solicit older investors. The absence of a recent sweep is not evidence the practice stopped.

Bottom line

A trust fund is a private instrument that nobody counts, sold almost exclusively by people who profit from the sale, on a promise — avoiding probate — whose value depends entirely on which state you die in and how diligently somebody retitled your assets.

It is genuinely useful for some people. If you own real property in more than one state, if you have a child who should not receive money in a lump sum, if you want continuity of management through incapacity, or if your estate is large enough that the exemption is actually in play, the arithmetic works and works clearly.

For an estate under the state’s small-estate threshold, with a house that qualifies for a transfer-on-death deed and retirement accounts that already name beneficiaries, a $2,475 document plus a $2,500 minimum annual trustee fee can cost more in its first year than the probate it was sold to avoid. In Maryland, on a $300,000 estate, the register-of-wills fee being avoided is $200 — the executor’s commission is a separate matter, and a family member serving as executor may waive it entirely.

The test is not whether a trust is a good instrument. It is an excellent instrument. The test is whether your particular facts — your state, your assets, your heirs — generate a problem it solves. The people best placed to answer that question are, almost without exception, the people selling the answer.

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What this piece is, and what it is not. This is an explanation of how trust funds work, what they cost, and the arithmetic that decides whether one is worth it. It is not legal, tax or financial advice, and it is not a recommendation for or against any instrument or provider. Probate procedure, trustee regulation, small-estate thresholds, transfer-on-death deeds and the Uniform Trust Code are all matters of state law and differ substantially from one state to the next; figures here are federal unless a state is named, and the state examples are illustrations rather than a survey. Tax figures are current as of October 2026 and Congress can change them at any time. Nothing here establishes an attorney-client or advisory relationship. Anyone making an actual estate-planning decision should take their own facts to a licensed estate attorney and a tax professional in their own state. See Editorial Standards.

Methods and sources. Tax figures for 2026 are from Revenue Procedure 2025-32: the estate and trust rate schedule (10% to $3,300; 24% to $11,700; 35% to $16,000; 37% above $16,000), the single and married-filing-jointly 37% thresholds of $640,600 and $768,700, the $16,100 standard deduction, the $15,000,000 basic exclusion and GST exemption, and the $19,000 annual gift exclusion. The trust personal exemption of $100, $300 and $600 is 26 U.S.C. § 642(b), which contains no indexing provision. The net investment income tax thresholds are § 1411 — subsection (a)(2) ties a trust’s threshold to the start of the top bracket, subsection (b) fixes individuals at $200,000 and $250,000; § 1411 was enacted in 2010 effective for tax years beginning after 2012 and its individual thresholds have never been indexed. The claim that the estate tax sunset no longer exists rests on the current text of § 2010(c)(3), where the former subparagraph carrying the “before January 1, 2026” expiry was struck by the 2025 reconciliation act and the remaining text indexes from a 2025 base; this is current law and not a prediction. Household prevalence is the Federal Reserve’s 2022 Survey of Consumer Finances — 6.2% of families holding “other managed assets” against 5.9% in 2019, and 1.8% / 14.2% / 21.1% by net-worth percentile from the Fed’s own detail tables — together with the Fed’s definition of the category, which covers trusts “for which components were not separately reported.” The 2022 wave is the most recent full survey; the Fed has said 2025 results will publish in late 2026, so this figure is due an update. Filer counts and compliance costs are from Treasury’s July 2025 Federal Register notice for OMB control number 1545-0092 (3,240,000 respondents, 33,700,000 hours, $6,139,000,000 of out-of-pocket cost); the per-filer figure is our own division of those totals, not the government’s. Fiduciary and professional fees deducted on Form 1041 for tax year 2022 — $7.66 billion and $7.05 billion — are from IRS Statistics of Income. Estate tax returns filed in 2022 (8,130) are IRS SOI; US deaths in 2024 (3,072,666) are CDC/NCHS. California probate figures are the statutes themselves: § 10810 for the attorney and § 10800 for the personal representative, which carry word-for-word identical schedules computed “without reference to encumbrances”; the $23,000 figure on a $1,000,000 estate is that schedule applied, and both fees may be claimed. Connecticut’s fee cap and quoted language are from C.G.S. § 45a-107 and the Probate Court Administrator’s user guide, the first quotation from its front page and the second from question 18. Maryland’s fees are § 2-206 and the commission § 7-601. California’s small-estate thresholds are Judicial Council form DE-300, revised 28 April 2025. Probate timing is § 9100 and § 12200; no state judiciary we examined — California, Texas or Connecticut — publishes a mean time to close a decedent’s estate, and the widely quoted “3–8% of the estate” and “nine to twenty-four months” figures could not be traced to any government, court or academic source. Drafting costs are a LegalTemplates study published in March 2026; that company sells DIY legal forms and has a commercial interest in attorney fees appearing high, which is the mirror image of the bias on the pages this one argues with. The trustee fee example is SECU’s published schedule, effective April 2024, services provided through Members Trust Company. The Uniform Trust Code count is the ACTEC Foundation’s, stated as of 2022, and the Uniform Law Commission’s own enactment map should be checked before relying on it. The transfer-on-death deed count is the American Bar Association’s Uniform Laws Update, September/October 2025. This draft was fact-checked line by line before publication and the check changed a great deal: an opening that asserted every page ranking for this query is published by somebody who sells trusts, which a live check of the results did not support; a claim that competing insurer and bank pages are stale on the estate tax exemption, which could not be substantiated against the pages that actually rank and has been removed; a quotation attributed to California Probate Code § 1500 that does not appear in that section, now corrected to § 1502 and quoted accurately; a selectively truncated quotation from a State Bar of California pamphlet, now cut; a trustee fee example that applied a minimum fee where the tiered rate governs, understating the ten-year cost by a factor of two and a half; a paraphrase of the LegalTemplates finding presented inside quotation marks; superseded IRS burden figures from a 2024 notice; a statement that no comparable federal examination followed the 2007 free-lunch report, when the 2015 National Senior Investor Initiative did; and a Maryland comparison that presented the register-of-wills fee as the whole cost of probate. Several adversarial claims were also softened to exactly the strength their sources support.

Related reading: Trusts: How Wealth Is Held, Protected, and Passed On · Inheritance: The Transfer of Wealth Between Generations · Legacy: Inheritance, Heirs, and Family Continuity · Taxes: How Wealth Is Structured and Preserved · Generational Wealth: How Long Fortunes Actually Last · Probate · Irrevocable trust · Grantor trust · Estate tax exemption · Step-up in basis · Spendthrift clause · Trust protector