What Is a Trust
A trust is a fiduciary arrangement that allows a third party, known as a trustee, to hold and manage assets on behalf of one or more beneficiaries. Trusts offer greater control, privacy, and flexibility than wills alone, making them a powerful tool in comprehensive estate planning.
The person who creates the trust is called the grantor or settlor. The trustee manages the trust assets according to the trust's terms, and the beneficiaries are those who receive the benefits of the trust.
Revocable vs Irrevocable Trusts
A revocable trust can be modified or dissolved by the grantor during their lifetime. It offers flexibility and avoids probate but does not provide asset protection from creditors. An irrevocable trust cannot be easily changed once established. It removes assets from your estate, potentially reducing estate taxes and providing creditor protection.
Common Types of Trusts
Living trusts are created during your lifetime and can be revocable or irrevocable. Testamentary trusts are created through your will upon death. Special needs trusts provide for disabled beneficiaries without affecting government benefits. Charitable trusts support charitable causes while providing tax benefits. Spendthrift trusts protect beneficiaries from creditors and their own financial mistakes.
Benefits of Establishing a Trust
Trusts provide numerous advantages including probate avoidance, privacy (unlike wills, trusts are not public record), control over distribution timing and conditions, incapacity planning, potential tax benefits, and asset protection depending on the trust type.
Funding Your Trust
A trust is only effective for assets that have been transferred into it. This process involves retitling real estate, changing beneficiary designations, transferring bank and investment accounts, and assigning ownership of personal property. Unfunded trusts provide no benefit and assets held outside the trust may still require probate.
Trust Administration
After the grantor's death or incapacity, the successor trustee takes over management. Duties include inventorying assets, paying debts and taxes, making distributions according to trust terms, maintaining records, and providing accountings to beneficiaries. Professional guidance is often advisable for complex trusts.