A trust is a legal arrangement in which you, the grantor, give a trustee1 (the person or company charged with managing and distributing assets according to your instructions) the right to hold title to property for the benefit of a third party, called a beneficiary. You may choose to have someone you know and trust or a corporate trustee to manage your trust. Trusts are designed to accomplish many goals, such as avoiding probate and maximizing tax efficiency.

You can set up a trust to protect your assets and provide for beneficiaries after your death or in the event of your incapacity. You can choose to make it revocable or irrevocable. A revocable trust lets you retain control of the contributed money and property (trust assets) during your lifetime, but provides for a successor trustee to take over after your death or incapacity. You can also amend a revocable trust to accommodate life’s changing circumstances.

An irrevocable trust, on the other hand, does not allow you to modify the terms, and after your death it cannot be changed or terminated. It is often used to avoid estate taxes and other forms of transfer tax. An irrevocable trust can be structured as a grantor trust or non-grantor trust. Grantor trusts, which are common among the wealthiest, let you report income on your individual tax return rather than on the trust’s tax return. Non-grantor trusts are typically structured as complex or discretionary trusts, which use the discretion of the trustee to decide how to distribute income to beneficiaries and can claim a charitable deduction for distributions to charities.

Whether you use a revocable or an irrevocable trust, it’s important to have a written document describing how the trust should be managed and when distributions should begin. It is also important to appoint a trustee or co-trustees who are competent, responsible, and able to act on your behalf. Beneficiaries can also review trust documents to ensure that they are happy with how their wishes are being carried out.

If you have any doubts, speak with a lawyer who has experience creating trusts. They can help you determine the best type of trust for your situation and draft the appropriate documents. You can also create a trust on your own using do-it-yourself trust services such as FreeWill, which is available online. Regardless of which route you take, be sure to “fund” your trust by transferring assets into the name of the trust while you are still alive. Otherwise, your trust will not be able to carry out your instructions after your death and will go through probate in accordance with state intestate succession laws. This may include re-titling real property, changing the ownership of bank or brokerage accounts and obtaining new stock or bond certificates for those owned by the trust.