October 16, 2023

What exactly is a trust?

In the most basic terms, a trust is a legal arrangement in which assets are held for the benefit of someone else (the beneficiary).  There are many types of trusts for various goals but trust laws are complicated. You will need to hire an experienced lawyer to help you determine whether a trust is beneficial for your situation.

Why Create a Trust?

Trusts are popular estate planning tools because they can be used for many purposes, including:

Estate Planning

Trusts can provide control and flexibility over distributions of assets, minimize estate taxes and preserve assets for your children until they are grown. Trusts also help avoid the expense of probate or legal claims.

Asset Protection

Certain trusts, such as an irrevocable trust, remove you from personal ownership, making your assets less vulnerable to potential creditors, financial liabilities, or potential lawsuits. You can set specific rules for distributing your assets, such as when a beneficiary may receive funds, or how funds can be used.

Tax Benefits

A trust can shift part of your tax burden to beneficiaries in lower tax brackets. Under certain conditions, assets in an irrevocable trust may be protected from estate tax after your death.

Protection in Case of Illness or Disability

A living trust can help you protect and manage your assets if you become incapacitated. You may specify a trustee to administer the trust according to its terms and working in your best interests. Without a trust, a court may appoint a guardian to manage your property.

Charitable Giving

A charitable trust allows you to support causes you care about while potentially enjoying tax benefits. These trusts can provide income for you or your beneficiaries during your lifetime but remaining assets are donated to charitable organizations of your choosing after your death.


While there are advantages, you should consider these potential drawbacks before establishing a trust:

  • A trust can be expensive to set up and maintain—trustee fees, professional fees, and filing fees may need to be paid.
  • Depending on the type of trust you choose, you may give up control over the assets in the trust.
  • Maintaining the trust and complying with recording and notice requirements can take considerable time.
  • Income generated by trust assets and not distributed to trust beneficiaries may be taxed at a higher income tax rate than your individual rate.

Types of Trusts

You may choose one or more types of trusts to meet your goals.

Living (Revocable) Trust

With a living trust, you maintain control over property such as your house, a boat, or investments. Assets that pass through a living trust are not subject to probate and are not treated like the property in your will. Your designated trustee will transfer assets to beneficiaries according to your instructions. You may change the trust or dissolve it during your lifetime. Unlike a will, a living trust is not part of the public records. However, living trusts are not protected from creditors, and income taxes and estate taxes are assessed on income earned by the trust.

Irrevocable Trust

Unlike a living trust, an irrevocable trust typically can’t be changed or dissolved once it has been created, meaning you can’t move assets, change beneficiaries, or rewrite any of its terms. It can still be a valuable tool for tax planning, asset protection, and charitable giving. If you have given up control, the property of the irrevocable trust is removed from your taxable estate. This may reduce tax liability for beneficiaries and may protect your trust from creditors. Property transferred to beneficiaries through an irrevocable trust will avoid probate.

Testamentary Trust

A testamentary trust is created through a will and takes effect upon the trustor’s death. At that point, selected assets in your will can be distributed into the trust. The terms of the trust document control how the assets are managed and distributed to heirs. Since you set these terms, you have an amount of control over how assets may be used after your death. A testamentary trust is often used by parents of minor or young adult children.

This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.