When most people hear the word “trust,” certain images come to mind. These include wealthy trust fund babies, elderly individuals with high net worths and other scenarios that often appear in the media. However, a trust can benefit people of all ages and income levels. Trusts can help simplify the estate planning process and provide a wide range of other benefits.

Generally speaking, a trust is used to hold property, and the trustee manages the assets in accordance with the instructions, rules and guidelines written into the trust instrument. The trustee can be a person or a professional corporation. Trustees must adhere to fiduciary duties set out in the trust instrument, and they are subject to various laws and regulations depending on jurisdiction.

In addition to managing the trust assets according to the trust instrument, trustees also must comply with tax law. Depending on the type of trust, income from the trust may be subject to income, capital gains or inheritance taxes, and there are sometimes tax consequences when assets are moved in and out of the trust.

There are two major types of trusts: revocable and irrevocable. Revocable trusts allow the grantor to maintain control of their assets during their lifetime, and they can be changed or revoked at any time. Irrevocable trusts are generally designed to reduce estate, gift and/or income taxes. They are not as flexible as revocable trusts, but they do not require probate.

Step 1: Choose the right trustee. This can be a trusted friend or family member or a professional trustee. It’s important to choose a trustee that will carry out your wishes and not have any conflicts of interest. Having an independent trustee can help to preserve family relationships, avoid conflict and bring objectivity to decision making. A professional trustee can be a valuable asset because they will have the experience and expertise to effectively communicate with beneficiaries.

Step 2: Transfer assets into the trust. This can include anything from real estate to investment portfolios, cash, life insurance policies, bank accounts and more. This can be done with the guidance of a trust attorney. It is important to retitle all assets that are transferred into the trust, as they legally become owned by the trust. This can take a bit more time than just executing a will, as titled assets need to be re-signed over from the individual to the trust.

As the trustee manages the trust, they will distribute the assets to the beneficiaries according to the provisions of the trust instrument. Beneficiaries can receive annual earnings distributions, or the entire trust principal (“corpus”) when the trust terminates.