What Is a Trust?


A trust may sound complicated, but it’s a valuable tool that can minimize taxes and protect assets in order to carry out your wishes after you pass away. It can also spare loved ones the hassles and expense of probate court. In addition, it can provide privacy and security for those named as beneficiaries of the trust.

A grantor works with an attorney to write a trust document based on their final wishes regarding specific assets. They then choose a person or firm to serve as trustee and manage the assets in the trust. A trustee can be a family member, someone familiar with your finances and interests or a financial institution. It’s important to choose a trustee with the time, skills and objectivity to properly manage the assets in the trust.

The grantor also outlines parameters for distributions of trust assets to named beneficiaries. This can include limiting the amount that can be distributed to any one beneficiary at any given time, or outlining that certain monetary amounts can only be used for specific purposes such as tuition payments or a down payment on a house. This can help to protect heirs from predators who may seek to prey on their wealth or prevent them from spending too much of what they’ve inherited in the short-term.

Many people create revocable trusts because they can amend their trust documents at any time. As your life evolves, you might want to add a beneficiary or change the terms of the trust. For example, you might become involved in a charitable cause that you’d like to support. Or you might have a grandchild that you’d like to include as a future beneficiary of the trust.

Another advantage of revocable trusts is that they avoid the probate process and reduce estate settlement costs. But if you have other assets with beneficiary designations, such as retirement accounts at work or bank accounts, then those assets will likely be subject to probate and transfer costs. In these cases, it can be a good idea to have a trust to protect those assets from the double taxation that would otherwise occur.

An irrevocable trust can be a useful way to minimize taxes and protect assets, but it’s important to understand the risks associated with this type of trust. It’s possible that the details of an irrevocable trust will need to be shared with a probate judge or other parties in the course of litigation, which can potentially make those details public record.

It’s important to talk with a trusted professional, such as an estate planning attorney or a financial advisor, about whether a trust is right for your situation. They can explain the benefits and risks, and assist you in determining which type of trust is best for your goals. They can also recommend a trustee to manage your assets and ensure that all legal requirements are met. If you decide to create a trust, it’s important to start moving assets into the trust as soon as your attorney recommends it. This will ensure that your trust fund is populated with the items you’d like to include and that those assets are titled properly so that the trust actually owns them.