What Is a Trust?


A trust is an arrangement in which a person transfers ownership of assets to another individual, who holds control of them for a specified period of time. A trustee administers the assets and distributes them according to the terms of the trust. The assets can include financial accounts, real estate, investment portfolios, artwork and even cars. Trusts are used to minimize taxes, protect property, avoid probate and provide flexibility in distributing assets.

Putting assets into a trust is a complicated process, and many people choose to have an attorney help them establish one. Some lawyers specialize in trusts, while others may not be familiar with the specific types of assets you wish to put into a trust. An experienced attorney can also help you decide which type of trust would best meet your needs, and can ensure that your chosen trustee has the necessary skill and experience to carry out your wishes.

The main reason to consider a trust is to avoid probate, the legal process by which assets are distributed after death. Trusts can also offer other benefits, including protection of personal privacy, flexibility in distributing assets and the ability to set conditions for disbursement.

A trust must be set up by a legal document signed by the person who wants to create it, known as a “settlor.” The settlor transfers ownership of the assets from his or her name to the name of the trust. The settlor must change the beneficiary designations on all assets in his or her name, such as retirement plans, life insurance policies and bank accounts, to reflect the new owner – the trust.

If a settlor does not transfer all of his or her assets into the trust, those unnamed assets must go through probate, which can be expensive and time-consuming. In addition, probate is public record, which can create difficulties if beneficiaries disagree about how to manage the inheritance or what to do with the money.

Some people who want to avoid probate set up living trusts, also known as revocable trusts. A living trust is a legal entity that can hold assets and pay income tax on them. Upon the settlor’s death, the trustee administers the assets of the trust, distributing them to beneficiaries according to the settlor’s wishes.

While a trust can be complex, it can offer significant benefits to those who plan ahead for the future. Talk to a lawyer with experience creating trusts, preferably an estate planning attorney, about your situation and goals. Then, work with a professional to ensure that your trust documents are carefully drafted and properly retitled. It may take a bit longer to set up a trust than a simple will, but it can save heirs time, money and grief after your death. And it can give you peace of mind knowing that your family and loved ones will be taken care of the way that you want them to be. Investing the extra time up front can make all the difference for those you love.