When I consider all the elements within estate planning, I think a trust is the one that is the most confusing to folks. So this week, I’ll cover the basics of what a trust is and how it might benefit you and your loved ones. Don’t worry—I won’t get too far into the weeds, but once you’ve read this, at least next time someone at a cocktail party mentions they updated their trust, you’ll at least understand what they’re talking about!
DEFINITION OF A TRUST:
A trust is a legal arrangement in estate planning where a person (the grantor or settlor) transfers assets to a trustee, who manages them for the benefit of specific beneficiaries. Trusts can help manage and distribute assets efficiently, avoid probate, minimize taxes, and protect wealth.
Components of a Trust
- Grantor (Settlor) – The person who creates the trust and transfers assets into it.
- Trustee – The person or entity managing the trust according to its terms.
- Beneficiaries – The individuals or organizations who will receive benefits from the trust.
- Trust Assets – Property, investments, or other assets placed into the trust.
- Trust Agreement – A legal document outlining how the trust operates, including the distribution rules.
HOW MANY KINDS OF TRUSTS ARE THERE?
If you ask Google how many kinds of trusts there are, you’ll get an answer showing more than twenty different kinds. That is true and illustrates that every estate plan can and should be customized to the client’s needs. Also shows the importance of working with an experienced estate planning attorney who knows what will work best for you and your situation. That said, the following are five different trusts more commonly used:
- Revocable Trust (Living Trust)
- The grantor retains control over the assets and can modify or revoke the trust.
- Helps avoid probate but does not provide tax benefits or asset protection.
- Irrevocable Trust
- Once established, the grantor gives up control and cannot alter it.
- Provides tax benefits and protects assets from creditors.
- Testamentary Trust
- Created through a will and only takes effect after the grantor’s death.
- Helps manage assets for beneficiaries who are minors or need financial oversight.
- Special Needs Trust
- Designed to provide for a disabled beneficiary without affecting their government benefits.
- Charitable Trust
- Benefits a charitable organization while offering tax deductions for the grantor.
So those are the basics but remember, there are many others too.
Benefits of a Trust in Estate Planning
Now, why would anyone want to establish a trust? How will it benefit you and your loved ones? Again, depending on your unique situation and goals, there may be other benefits beyond the ones listed below, but these are the ones most cited by estate planning professionals.
- Avoids Probate – Assets in a trust bypass the probate process, allowing for quicker distribution.
- Maintains Privacy – Unlike wills, trusts are not public records.
- Provides Control – Allows the grantor to set specific conditions for asset distribution.
- Reduces Estate Taxes – Certain trusts can minimize estate and gift taxes.
- Protects Assets – Some trusts shield assets from creditors or lawsuits.
Not everyone needs a trust, but if you have assets (real estate, for example) and want your loved ones to have the easiest time possible after you die, a trust can be very useful, even saving them money in some cases.
I know that many clients don’t want to know everything about estate planning, they consider that my job. And so do I, but I have always believed an educated client who understands the basics is a client who can make good choices for themselves and their loved ones. If you have any questions about trusts or estate planning in general, please do not hesitate to reach out. If it is time for you to create or update your will or other documents, let’s get together and ensure you have the right plan. Call me at 513-399-7526 or learn more at my website, www.davidlefton.com