What Is a Trust?

A trust is an instrument that you can use to manage and transfer assets during your lifetime, as well as upon death. It allows you to specify how those assets should be managed and passed on, and offers substantial tax benefits and an expedient way of transferring assets to beneficiaries. Trusts can be beneficial for a wide range of individuals and families.

A trustee is a person or company that administers your trust, and they are charged with managing your assets in accordance with the terms of the trust document. Trustees are responsible for all aspects of the trust administration, including investment management, income tax reporting and distributions to beneficiaries. Trustees may be one or more individuals, a trust company, or a partnership. Depending on your estate planning goals, you may want to consider appointing co-trustees.

The settlor, or grantor, creates a trust by signing a legal document to establish a separate entity for the purpose of holding and managing assets for the benefit of specified beneficiaries. Once established, the trustee is given authority to manage these assets for your benefit during your lifetime, and then to pass them on in accordance with the trust agreement when you die. Trusts can be revocable or irrevocable. If you choose a revocable trust, you can amend the trust document at any time to reflect your changing circumstances or to take into account new beneficiaries.

While a trust is ideal for a broad range of assets, it can be particularly useful for reducing estate taxes by removing assets from your taxable estate. In addition, it can also help your family avoid costly probate proceedings, which can erode the value of your estate.

Trusts are often used to make sure a disabled or special needs family member receives the proper care and attention, and for protection from creditors and predatory relatives. Many individuals also choose to establish a trust for privacy reasons. Unlike a will, which can be public, a trust is private and can restrict access to information to those who don’t need it.

Trusts are complex instruments that require careful consideration and expert advice to be effective. It is worth your while to consult with an estate planning attorney and financial advisor to see whether a trust could be part of your plan. Whether it is or not, the important thing is to ensure that your wishes are written down, clearly understood and implemented. Your loved ones will thank you for it. To get started, begin moving assets into your trust as soon as your attorney recommends it. Be sure to retitle the assets so they reflect the name of your trust, and don’t forget to update your beneficiary designations on other accounts, such as retirement plans at work.