What is a Trust?
An Introduction to One of the Most Misunderstood Subjects in Estate Planning
Many people have heard the term “trust” before, but are often unclear about what a trust actually is or how trusts are used in estate planning. While trusts can become legally and financially complex, the underlying concept is relatively straightforward.
Generally speaking, a trust is a legal arrangement in which one person or entity holds and manages assets for the benefit of another person or group of people.
The person creating the trust is commonly referred to as the “settlor,” while the individual responsible for managing the trust assets is known as the “trustee.” The individuals who ultimately benefit from the trust property are referred to as the “beneficiaries.”
Trusts may be created during a person’s lifetime or through a Will after death. Depending on the circumstances, trusts may be used for a variety of estate planning purposes, including:
managing assets for minor children;
protecting vulnerable beneficiaries;
providing for family members over time;
assisting with incapacity planning;
maintaining privacy; or
helping structure the administration and distribution of wealth.
Many people mistakenly assume that trusts are used only by the extremely wealthy. In reality, trusts can serve practical purposes for families with a wide range of financial circumstances.
For example, parents may establish trusts for young children who are not yet mature enough to manage a significant inheritance directly. Similarly, trusts may sometimes be used where beneficiaries have disabilities, creditor concerns, addiction issues, or other circumstances requiring ongoing management of assets.
A trustee occupies an important fiduciary role and is generally required to act honestly, prudently, and in the best interests of the beneficiaries. Trustees may exercise significant authority over trust assets and can potentially be held personally liable where trust property is mismanaged.
Despite their benefits, trusts are not appropriate in every situation. Trust planning may involve ongoing legal, accounting, tax, and administrative considerations, and improperly structured trusts can sometimes create unintended complications or disputes.
Whether a trust is appropriate depends on the nature of a person’s assets, family circumstances, and overall estate planning goals. A properly prepared estate plan can help determine whether trust planning may be beneficial in your particular situation.
If you would like assistance reviewing your Estate Plan or discussing Trust Planning, please book your FREE CONSULT with Tonelli Estate Law today.
***This article is for general informational purposes only and does not constitute legal advice***
