A trust is a legal arrangement that transfers ownership of assets from one party, the grantor (also known as the settlor), to another, the trustee. The trustee is responsible for managing the property and disbursing it according to the terms of the trust. Depending on the jurisdiction and specific trust structure, the trustee may be required to follow various legal and financial rules.

There are many reasons why individuals create trusts, ranging from the desire to avoid estate taxes to the need for protection of assets against creditor claims and other financial vulnerabilities. Using the services of a financial and legal professional can help ensure that a trust meets an individual’s goals and is properly formed to achieve those purposes.

When a person creates a trust, he or she typically signs a document that creates the trust as a separate legal entity. Then the grantor transfers ownership of real property, investments (stocks and bonds), cash and bank accounts to the trust’s name. Once the assets are in the trust, they become legally owned by the trust, which then can make distributions to beneficiaries.

Trusts are often created for the benefit of children or other family members. Trustees can decide to distribute the assets in a lump sum or over time, and can include conditions such as having beneficiaries work or finish school before receiving their inheritances. For high-net-worth individuals and families, a trust can also be used to reduce income tax liability.

A family trust can also be used to protect assets against divorce, lawsuits and other financial risks. It can be especially useful for people who want to keep their wealth away from family members who might sell or spend it. Irrevocable trusts can be used to hold life insurance policies, gifts of assets that will be made available at a future date and funds for charitable donations.

If an individual dies without a trust, assets are subject to probate, in which a judge, not the beneficiary(s), has final say on who gets what. A trust can spare heirs the expense and delay of probate, and allow beneficiaries to receive their inheritances quickly and privately.

In addition to protecting assets, a trust can minimize estate taxes and provide the opportunity to give heirs an immediate investment return. It can also be used to protect a family business or provide for a disabled child’s care and maintenance.

Choosing and managing a trustee is a critical part of trust administration. The trustee must make sure that distributions are being made according to the terms of the trust and that all laws, regulations and other obligations are being met. In addition, a trustee must ensure that the assets are being managed in accordance with the trust’s objectives. Keeping a detailed inventory of the trust’s assets, as well as thorough records of transactions, can streamline the process of preparing and filing reports to tax authorities. The inventory can also help the trustee to track changes in asset value and to make adjustments for tax purposes.