When it comes to estate planning, financial security or even wealth management, the concept of a trust often comes into play. If you’re like most people, you might assume that trusts are reserved for the ultra-wealthy. But this couldn’t be further from the truth; trusts are powerful tools that can benefit people in virtually any socio-economic scenario.
So, what exactly is a trust, how does it work and why might you consider one? Understanding how trusts work can help individuals make informed financial and estate planning decisions.
What is a trust?
A trust is a legal tool that empowers you to appoint someone you trust to manage assets for your beneficiaries. By establishing a trust, you can protect beneficiaries who may not be ready or able to manage large sums of money. Trusts can also help in multi-generational planning or in caring for individuals with disabilities.
Think of a trust as a container that holds assets—such as money, real estate or investments—so they can be managed and eventually passed on according to your wishes.
You can leverage trusts for a variety of purposes, including keeping your wealth private by avoiding probate and helping to ensure that minors or dependents under your care are cared for financially. Your trust should include a trust document or deed, which outlines your intentions, rules for how the trust is to be managed and when or how the assets should be distributed.
Types of trusts
You can establish a revocable trust, which has been dubbed a living trust due to how it functions. This type of trust allows you, as the grantor, to change or cancel the trust during your lifetime. Alternatively, you can explore an irrevocable trust, but you should know that, once established, you, as the grantor, cannot alter or revoke this type of trust. It provides stronger protection against estate taxes and creditors but comes with a loss of direct control over the assets.
A trust is more than just a financial structure—it’s a way to help ensure that your intentions, values and responsibilities are honored over time. Enlisting experienced legal guidance is a great place to start if you’re considering a trust.