A trust is a legal agreement that names someone to hold property for the benefit of others. The trustee is the person or company that manages trust property, and “beneficiaries” are the people who benefit from the trust. A living trust—the most common type of trust—is a trust created while the property owner is alive, and it’s revocable during the lifetime of the trust maker. Some people use a will in addition to a trust to distribute their property.

A revocable trust is one that can be modified or revoked at any time. A simple living trust is a revocable trust that becomes irrevocable when the trust maker dies. In contrast, an irrevocable trust cannot be changed once it has been made. Trusts that are made to avoid estate taxes are typically irrevocable trusts. 

The main advantage to using a trust is that a trust helps to avoid probate. Probate is the court process that oversees the transfer of your property and payment of any debts after you die. The process can be expensive and time-consuming for your loved ones. There are some other advantages to a trust as well. They include: Privacy. A will becomes public after the property owner dies, but a trust stays private. Only the beneficiaries and the trustee are informed of the trust and its contents. Flexibility. A trust can be more flexible than a will, which can be especially useful to those who have complicated relationships or estate planning needs. For example, a husband in a second marriage might want his current wife to be able to live in their house before the house passes to his children from his first marriage. Timed distributions. A trust doesn’t have to transfer all the property at once, and can instead transfer property over time. A parent could set up a trust to take care of the bills of an adult child with special needs rather than giving their child a lump payment. Similarly, parents of young children or young adults may want to provide payments monthly or yearly until the children become mature enough to handle their own money. Tax avoidance. Some trusts can be designed to reduce estate taxes. However, most estate taxes affect only the very rich.

There are many reasons to set up trusts. Married couples often realign the ownership of their assets to save substantial federal estate taxes and pass more on to their heirs. Rather than owning assets jointly, they choose to own assets individually so that they can each take full advantage of the increasing unified credit amount. Preserving each spouse’s unified credit can save hundreds of thousands of dollars in estate taxes. If the time comes that you are no longer able to handle your own affairs, trusts can ensure that there will be someone who is experienced and objective to “mind the store.” If there is a serious illness or disability, a trust ensures that a plan is in place to take care of your needs and those of your loved ones. When the trust is managed by a full-service trust company, other professional services can be provided, such as bill paying. Business owners can use trusts to save on estate taxes when passing along businesses to heirs. Trusts are also useful for blended families with spouses or children from previous marriages. The trust can spell out exactly how marriage affects the inheritance of children or grandchildren from a first marriage. Naming an independent trust company removes the emotional element often associated with friends or family members.

A Private Trust is an estate planning vehicle that transfers control of certain assets from the Grantor to the Trustee. The Trustee then manages the assets while ensuring that certain long-term conditions remain in effect as set forth by the Grantor. The Trustee carries out the wishes and instructions of the Grantor as noted within the Trust document. Trustees have the job of managing the assets within the Trust for a specified time period and then allocating them to the beneficiaries according to the directions within the Trust. In many cases, the Trust continues to be active long after the Grantor has died. There are two primary types of Private Trusts: Living (or Revocable) and Irrevocable. A Living Private Trust can be changed and controlled. An Irrevocable Private Trust cannot be easily altered or modified. Once property, money or other assets are transferred to the Trust, they’re what’s known as Trust-owned. Contrary to popular belief, assets in a Trust do not belong to the Trustees. Of course, Trustees may receive financial or other benefits for their management responsibilities, but that would be defined in the Trust and either paid out of the Trust or the estate. All assets remain controlled by the specific rules of the Trust until its termination. Termination typically occurs when assets have been fully dispersed or otherwise depleted.

Not everyone needs a trust, but most people should consider one. Trusts aren’t just for the affluent. Setting up a trust is an excellent way to control what happens to your estate, regardless of its size, to possibly reduce estate taxes and protect against the expense and aggravation of probate. Unlike wills, trusts are not subject to probate and therefore allow you to keep your affairs private.

Private Trust Definition: A Private Trust is a legal contract that holds and manages assets for relatives, family members and friends of the Grantor (the Trust creator and owner). There are three major components to any Trust: Grantor: A Trust is created by a “Grantor,” who may also be referred to as a “Trustor” or “Settlor.” Trustee: Trusts are managed by a “Trustee” (or Trustees) who oversees and manages the Trust and its assets. Beneficiaries: A Trust benefits persons or charities, known as the “beneficiaries.” In legal terms, a Private Trust is a “fiduciary relationship” that grants a beneficiary the right to money or property. Private Trusts can survive the Grantor’s death, and may also be created through direction in a Living Will. In the latter case, the Trust will be formed after the Grantor’s death.