Reasons to Set Up a Trust


A trust can be established during life or at death (via your will), to provide for the distribution of money and property to named beneficiaries. A trustee manages the trust assets and distributes them according to your instructions. A trustee can be an individual or a corporation. The trustee may be given specific powers or a wide range of discretion, including the power to invest the trust assets. Trusts are often used to avoid or reduce gift taxes, protect the beneficiaries’ eligibilities for government benefits such as Medicaid, preserve privacy, and control asset distributions.

Creating a trust can be complicated, so it’s important to work with an experienced attorney. In addition, the cost of setting up and maintaining a trust can vary widely depending on the type of assets included in the trust and how complex your distribution strategy is.

The person who puts money and property into a trust is called the “grantor” or “settlor.” You can be both grantor and trustee, but you should name someone else to serve as successor trustee after your incapacity or death. The trust document provides instructions for managing and giving out the assets, as well as when to end the trust and who will receive any remaining funds.

It can be helpful to set up a revocable trust during your lifetime to make it easier to manage, while retaining ownership and control of the assets in the trust until your incapacity or death. A revocable trust can help avoid probate, but it still must go through a process known as ancillary probate in any state where you own out-of-state property.

A second reason to set up a trust is to lower estate taxes. A trust fund can hold a variety of assets, such as cash, real estate, stocks and bonds, art, collectibles and even family heirlooms. It can also be set up to pay for your care, if you become incapacitated.

Trusts can be used to preserve assets for beneficiaries with special needs. For example, a disability trust can ensure that a loved one with a physical or mental condition receives care while maintaining eligibility for government benefits. It can also be used to limit a beneficiary’s access to assets in order to prevent them from spending irresponsibly or making bad financial decisions.

Trusts can also be used to shield investments from the claims of creditors. This is especially true for life insurance policies. Trusts can be drafted to require that beneficiaries spend the proceeds from the policy within a certain time period or for specific purposes (such as buying a home, starting a business, or funding an education) before they can withdraw the funds. It’s important to carefully consider the terms of your trust and choose a trustee who is responsible, competent, and trustworthy. Moreover, you should select a corporate trustee, rather than an individual, to ensure that the trustee is able to provide unbiased management of the trust assets and that the beneficiaries’ interests are protected.