So What Is a Trust, Exactly?

Trusts seem to be shrouded in mystery. Often thought of as an estate planning tool only for the ultra-wealthy, many people aren’t sure what trusts are really all about let alone whether or not a trust would be appropriate for their family.

Let me try to clear up the confusion: A trust is nothing more than a legal agreement set up to benefit someone or something. For example, some people set up trusts to benefit their children, their grandchildren, their favorite charities, or even their pets.

It is easiest to understand trusts if you think of them in terms of a relationship between three separate parties, people or entities.

The first party (called the trustor, settlor, or grantor – these terms are all interchangeable and refer to the same party), funds the trust by placing assets into the trust. Any type of asset may be used, such as money, brokerage accounts, cars, and even real estate.

The second party, known as the trustee, agrees to manage the assets held by the trust. Once the trust is created, legally executed, and the assets are moved into the trust, the trustee holds title to those assets on behalf of the trust.

The third party, who is known as the beneficiary, receives the benefits of the assets held in the trust. For example, those benefits might include interest paid on money in the trust, a monthly allowance, or even a place to live.

And the use of trusts as a planning tool isn’t just for the rich. Trusts can provide many advantages for the rest of us, too, including:

• Avoiding the formal probate process associated with transferring property using a will;
• Protecting assets from a beneficiary’s creditors;
• Caring for those who cannot care for themselves, such as minor children or those with special needs; and
• Reducing tax liability.

Although it may seem confusing, a trust can even be set up to benefit the person who puts the assets into the trust. In other words, while there are three roles to be played, each role does not necessarily have to be played by separate and distinct parties. One person can serve in more than one of those roles.

For instance, a person may place assets into a trust, select someone else to manage those assets, and then receive the benefits himself. To take that example one step further, the person who is both the trustor and the beneficiary could even be the trustee if the circumstances suited such a scenario.

How a trust is drafted and who plays each of these three roles depends on the goals of the person setting it up. Call our office today to schedule a Family Estate Planning Session, where we can explain trusts further, answer all your questions, and help you determine if a trust is the best strategy for you and your family.

Dedicated to your family’s wealth, health, and happiness,