Trust is an estate planning tool that can help you pass on your wealth to loved ones. While many people assume that trusts are reserved for the very wealthy, they can be beneficial to individuals and families in almost any socioeconomic situation. In fact, they can provide a number of benefits that may not be available through other methods, such as avoiding probate and protecting assets from taxes.

A trust is created by transferring property (either real or personal) to a person or institution that will manage the asset on behalf of a beneficiary. The trustee can be an individual with financial expertise, a friend or family member, or a professional trust company. The trustee is responsible for interpreting the terms of the trust, investing the assets, and making distributions to the beneficiaries. The trustee will also keep records of transactions and submit tax returns. The beneficiary can receive income distributions and eventually receive the trust principal (“corpus”) at the end of the trust term.

Many people use trusts to ensure that a beneficiary with special needs, such as a child with a disability or an adult who cannot be trusted with a lump sum inheritance, can still receive a meaningful income from the trust assets. Trusts can also be employed to protect family members who could get sued, divorced or otherwise lose their financial independence. Trusts can also be used to secure assets for specific purposes, such as a beneficiary’s education or the start-up of a business.

When you choose to establish a trust, you must carefully consider what kind of authority the trustee will have and who you want as the beneficiaries. You will also need to decide what assets you want to put into the trust. It is important to consult a knowledgeable attorney when creating a trust. It is also advisable to avoid using prepared forms or kits that you may see advertised in magazines, brochures and by door-to-door salespeople, as they may not be tailored to your unique situation. You should also be aware of investment scams that advocate the unrealistic benefits of trusts.

In addition to the aforementioned advantages of trusts, if properly drafted, a trust can reduce or eliminate state and federal estate taxes. Often, these savings can make the difference between a significant tax burden and leaving a legacy to your loved ones.

A key advantage of a trust is its ability to help during illness or disability, whereas a will only takes effect at death. A revocable trust established during your lifetime can allow you to name an agent (through the trust document) to make decisions and manage your assets if you become incapacitated. This can include obtaining medical care, paying bills and submitting tax returns.

A properly drafted trust can also protect your assets from lawsuits, creditors and future death taxes. The trustee can distribute assets to your beneficiaries according to your wishes and the guidelines you have established in the trust document.