Trusts: The Complete Guide
A trust is a legal arrangement that allows you to transfer assets to a trustee to hold and manage for the benefit of your chosen beneficiaries. Trusts are commonly used to avoid probate, maintain privacy, and control how and when assets are distributed.
Trusts can be powerful estate planning tools, but they are not one-size-fits-all. Understanding how trusts work — and when they make sense — is essential before deciding whether one belongs in your estate plan.
What Is a Trust?
A trust is a legal relationship involving three roles: the grantor (the person who creates the trust), the trustee (the person or institution managing the trust), and the beneficiaries (those who receive the trust assets).
When you create a trust, you transfer ownership of certain assets into the trust, and the trustee manages those assets according to the instructions you set out in the trust document.
How a Trust Works
Once assets are placed into a trust, they are governed by the terms of the trust agreement rather than by a will. This allows assets to be managed and distributed without court involvement in many cases.
Depending on the type of trust, you may serve as your own trustee during your lifetime, retain control over the assets, and name a successor trustee to take over if you become incapacitated or pass away.
Types of Trusts
Revocable Living Trust
A revocable living trust allows you to retain control over your assets during your lifetime and make changes or revoke the trust at any time. It is commonly used to avoid probate and plan for incapacity.
Irrevocable Trust
An irrevocable trust generally cannot be changed once it is created. These trusts are often used for tax planning, asset protection, or Medicaid planning, but they involve giving up some control over the assets.
Trusts vs. Wills
Both wills and trusts are estate planning tools, but they serve different purposes. A will directs how assets are distributed through probate, while a trust can manage and distribute assets outside of probate.
Many estate plans use both a will and a trust together. A will can handle matters that a trust does not, such as naming guardians for minor children, while the trust manages asset distribution.
Benefits of a Trust
Trusts can help avoid probate, maintain privacy, provide continuity if you become incapacitated, and offer greater control over how assets are distributed to beneficiaries.
They are especially useful for blended families, families with minor children, beneficiaries with special needs, or situations where assets should be distributed over time rather than all at once.
Common Misconceptions About Trusts
Trusts Are Only for the Wealthy
Trusts are often associated with high net worth individuals, but many middle-class families use trusts to simplify estate administration and avoid probate.
Creating a Trust Means Losing Control
With a revocable living trust, you typically retain full control over your assets during your lifetime and can change the trust as your circumstances evolve.
Funding a Trust
Creating a trust alone is not enough. Assets must be properly transferred, or “funded,” into the trust for it to work as intended.
This may include retitling real estate, bank accounts, and investment accounts in the name of the trust. Assets not funded into the trust may still require probate.
Updating and Maintaining a Trust
As your life changes, your trust should be reviewed and updated to reflect new assets, changes in family circumstances, or updated planning goals.
Regular reviews help ensure the trust continues to function as intended and remains aligned with your overall estate plan.
Common Questions About Trusts
Do I Still Need a Will If I Have a Trust?
Yes. Most people with a trust also have a will, often called a “pour-over will,” which ensures that any assets not placed into the trust are transferred to it at death.
Can I Create a Trust Without a Lawyer?
While templates and online tools exist, trusts can be complex. Mistakes in drafting or funding can undermine the benefits of the trust and create legal issues later.
How Often Should a Trust Be Reviewed?
Trusts should be reviewed every few years or after major life events such as marriage, divorce, relocation, or significant changes in assets.