The Importance of Trust

Trust is one of the most important things we possess — on an interpersonal level in our relationships, and at work in our jobs and organizations. Being able to trust others who have earned our trust — and to repair our trust when it is broken — helps us function more effectively at home, in the workplace, and even across countries. Trust is essential to emotional well-being and strong, healthy relationships. It is also critical to the success of businesses, nonprofits, and societies as a whole.

Creating a trust is an estate planning tool that allows you to keep your affairs private and manage assets for the benefit of future generations. It can be an effective tool to help ensure that your wishes are carried out as you desire, especially when it comes to avoiding probate and taxes. Trusts can be complex and it is important to seek professional advice when making the decision to create one. Trusts can be revocable or irrevocable and may be set up for a variety of purposes.

A trust is an arrangement in which a person, known as the grantor, transfers ownership of property (usually cash or other assets) to another person, called a trustee, who is responsible for managing the trust assets according to specified terms and conditions. The grantor can choose to be the trustee of his or her own trust, or have a trusted friend or family member serve as trustee. The grantor can also name a corporate trustee to provide professional, unbiased management of the trust and the distribution of the assets to beneficiaries.

People trust others based on their beliefs about the person, the relationship between them, and the meaning of a given statement or action. These beliefs can be based on the behavior and verbal expressions of that person, or on more abstract estimates of probabilities about their likely behaviors. The underlying reason people trust others is their optimism that they will behave in ways that are good for them. This belief is known as “affective trust.”

As a practical matter, trusts can be a more cost-effective and time-efficient way to manage significant wealth than a will. Trusts can also help preserve family relationships by keeping financial matters private and limiting conflicts of interest. They can also minimize the costs of probate, a lengthy legal process that must take place before assets can be transferred to heirs.

While the benefits of trusts are many, there are some pitfalls to consider. To avoid potential problems, you should talk to your Northwestern Mutual financial advisor as well as an estate planning attorney and tax professional before deciding whether a trust is right for you. Trusts vary in size from relatively modest amounts to those that manage substantial family wealth across multiple generations. Trusts can also be revocable or irrevocable, and they can be set up for specific purposes such as education, spending, and charitable giving. In some cases, the trustees of a trust can be named as guardians for children who are minors.