Before the American Taxpayer Relief Act of 2012, there were many families that created trusts as a means to avoid estate taxes. With the estate tax exemption now at $5.45 million per person, estate taxes will only be an issue for far less than 1 percent of Americans. Married couples also have the option to use portability, so one spouse’s unused estate tax exemption can be passed to the surviving spouse.

Some people argue that the new estate tax rules have made trusts inefficient estate planning tools for most families. Unless a married couple has an estate that is worth more than $11 million, the costs of managing a trust will probably outweigh the estate tax savings that the trust brings them. However, saving money on estate taxes is not the only reason to set up a financial trust.

Financial trusts have been used in people’s estate plans long before estate taxes were a concern. Trusts can allow a parent to transfer wealth to their children in a more controlled way than simply leaving children with access to the entire estate. Some parents prefer that their children do not receive a sudden windfall, so they set up trusts that stagger out disbursements or tie them to specific milestones. Trusts are also useful tools for leaving assets to charities.

An estate planning attorney can often help clients to decide whether setting up a trust would be beneficial for their unique financial situation. Some people may decide to serve as the trustee themselves and then pass that responsibility to a family member. Other people choose an institutional trustee to manage their family trust.

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