What is a trust?

There are so many different types of trusts that there is no “one size fits all” definition of a trust, but here are the basics of what a trust is and what a trust can do.

A trust is a legal entity that holds assets for the benefit of another person. A “settlor” or “trustor” is the person who creates the trust. A “trustee” is the person who manages trust assets. A “beneficiary” is the person for whom the benefit of the trust is intended. A trust will either be revocable or irrevocable. The settlor and/or trustee of a revocable trust may modify or revoke the trust fairly easily, according to the terms of the trust, while an irrevocable trust may not be modified or revoked at all, or except under limited circumstances outlined in the trust and/or in state law.

Trusts are a way of passing property to heirs and others without the need for probate. Trust administration is generally private and therefore not public record like a probate is.

Trusts are also a way of allowing someone else to manage your property while you are still alive. A trustee can manage any property placed into the trust. Therefore it is important to properly “fund” the trust by re-titling assets into the name of the trust instead of you individually.

Irrevocable trusts generally cannot have the settler be the same person as the trustee without unpleasant consequences. The purpose of an irrevocable trust can be to reduce taxes, to protect assets, or to create control over a long-term legacy.

Many people choose a revocable living trust for its flexibility and the fact that you do not lose control over your own property.

Those who are looking for greater asset protection choose some combination of irrevocable trusts, revocable trusts, and LLCs, among other options. These are not options to be taken lightly and no one solution is right for everyone. It is important to talk to a knowledgeable planner about your specific situation.

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