A trust is a legal arrangement to hold assets on behalf of another person. The trustee, chosen by the settlor (or grantor) of the trust, takes responsibility for managing those assets according to a plan specified in the document. The trustee must follow state law to properly administer the trust and distribute any income or property generated. Trusts are often used in conjunction with a will to provide additional planning options for a family’s estate.

One of the most common reasons for households to establish a trust is to avoid probate, which can take anywhere from several months to several years to complete and can be costly. Depending on jurisdiction, avoiding probate can significantly reduce or even eliminate the need for heirs to pay any taxes in connection with their inheritance.

In addition, a properly executed trust can protect your beneficiaries from creditors, predators and divorcing spouses, as well as help ensure that they receive your inheritance in accordance with your wishes. This is particularly important if your heirs are under financial stress, struggling with alcohol or drug addiction, or dealing with other issues that may make it difficult for them to manage money responsibly.

There are a variety of different types of trusts, which differ in their purpose and the responsibilities they carry out. One of the most common is a revocable living trust, which allows you to maintain control over your assets during life and lay out the blueprint for how you’d like those assets to be managed after your death. This type of trust is usually flexible and can be amended as your circumstances change, such as when children grow up or get married or when you’re involved in a charitable cause you feel passionate about.

Another common type of trust is a life insurance trust, which holds the proceeds of a policy in the name of the trust and provides for a lump sum payment to your beneficiary in the event of your death. These policies can be an excellent tool to help affluent families minimize tax consequences and keep their wealth within the family, while providing peace of mind that their loved ones are protected in the event of an unexpected death.

In addition to these traditional uses, trusts are also often utilized by business owners who wish to ensure that their businesses continue to operate smoothly in the event of their death or incapacity. A well-crafted trust can ensure that a family’s business continues to thrive by transferring ownership of the business to successor trustees who will take over management of the company’s assets and business operations.