basics of a trust

What are the Main Reasons for Using a Trust?


Estate planning is crucial in ensuring the smooth transfer of your assets and property to your loved ones after you pass away. While various tools and strategies are available, a trust can offer unique advantages that make it an attractive option for many individuals.

Having one—or more trusts—in your estate plan can make sense, regardless of how much money or property you have. According to a recent article from Fortune, “Understanding trusts: An important estate planning tool for everyday Americans,” estate planning is less about dying and more about living. Most families create estate plans to take care of their families. A trust can help achieve this goal by providing privacy, asset protection, and avoiding probate.

A trust is a legal document creating a three-way relationship between three different parties: the trust, the trustee and the beneficiaries. The trust is the legal entity holding title to the assets in the trust. The trustee is the trust’s decision maker, and the beneficiaries receive assets from the trust.

A grantor creates the trust and directs how assets will be used during the grantor’s lifetime and how those assets should pass to the beneficiaries when the grantor dies. Another reason to have a trust: assets pass directly to beneficiaries and don’t go through probate.

While the word “trust” may embody the idea of attorneys’ offices and courtrooms, they are legal and financial arrangements that most people use in their day-to-day finances. Business entities like LLC (Limited Liability Companies) have the same three-way relationship: the president of the LLC, the decision maker; the LLC itself, which owns the assets; and LLC members, who are like beneficiaries of a trust.

Your estate planning attorney will know which type of trust suits your situation. However, they are created similarly. The grantor and their attorney agree about what kind of trust is needed, and the trust is established. The trust’s language specifies how the trust assets should be managed and passed to beneficiaries. The grantor places assets inside the trust, removing them from the grantor’s ownership and estate. The grantor names a trustee who makes the day-to-day decisions for the trust, its assets, and its beneficiaries. When the grantor dies, the trustee directs the assets’ distribution according to the trust’s terms.

Trusts offer a clear road map for your wishes, with many benefits compared to a last will and testament.

Benefits of Trust:

Probate Avoidance: Most trusts avoid probate, the court-supervised process of validating a wilTrusts can help your assets bypass the probate process, allowing for a smoother transfer of assets to beneficiaries and potentially reducing costs and delays.

Privacy: Unlike a will, which becomes a public record during probate, a trust can provide a greater level of privacy, keeping your financial affairs confidential. Since the trust owns assets, the grantor’s and beneficiary’s names are not on the public record, preserving privacy.

Asset Protection: Certain types of trusts, such as irrevocable trusts, can protect your assets from creditors, lawsuits, or divorce settlements, helping preserve wealth for your intended beneficiaries. Trusts protect assets from legal action, creditors, and certain life-altering events like divorce.

Control: Trusts allow you to maintain control over your assets even after passing. You can set specific terms and conditions for their distribution, ensuring your wishes are followed.

Incapacity Planning:  Many trusts allow the grantor to retain control of the assets while they are living. Trusts can also direct your trustee to manage the trust if you become incapacitated. With a revocable living trust, you can establish provisions for managing your assets if you become incapacitated, avoiding the need for court-appointed guardianship or conservatorship.

Minors and Dependents: Trusts enable you to designate a trustee to manage and distribute assets on behalf of minor children or dependents, ensuring their needs are met until they reach a certain age or milestone.Trusts can be used to spell out guardianship nominations for young children and create plans to help children inherit responsibly.

Blended Families: Trusts offer flexibility in providing for children from previous marriages or relationships, ensuring they receive their intended share while protecting the interests of a surviving spouse or partner.

Special Needs Planning: A special needs trust can protect the eligibility of disabled beneficiaries for government assistance programs while supplementing their care and quality of life.

Tax Planning: Trusts can be utilized as a tool for estate tax planning, potentially reducing estate tax liabilities and maximizing the transfer of wealth to future generations. By removing assets from your estate, trusts can minimize estate and income taxes for beneficiaries and preserve more wealth.

Charitable Giving: Establishing a charitable trust allows you to support causes you care about while potentially providing income tax benefits. Certain trusts can be used to achieve specific philanthropic goals, whether leaving a small amount to a local organization or making a large grant to a national foundation.

Speak to us and your financial advisor to determine which type of trust aligns with your goals and circumstances. We can provide personalized guidance based on your unique needs.

Additional Reading

Estate Planning Essentials for the Sandwich Generation

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How Marital Trusts Help Protect Blended Families

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Essential End of Life Documents: What You Need to Know

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