Understanding Trusts

Why This Matters

Trusts are often associated with significant wealth, but they serve several practical purposes relevant to a broader range of families: providing for a minor child or a beneficiary who needs extra support (Lesson 15), avoiding probate for specific assets, maintaining privacy (since a will is public record after probate but a trust generally isn't), and adding conditions or staggered timing to an inheritance.

Trusts are also more complex to set up and maintain than a will alone, so understanding the basic mechanics helps you have an informed conversation with an attorney about whether one fits your specific situation.

Basic Parties and Structure

A trust involves a grantor (the person creating the trust and typically funding it with assets), a trustee (who manages the trust's assets according to its terms), and one or more beneficiaries (who receive the trust's assets or benefit from them). The grantor and initial trustee are often the same person during their lifetime, with a successor trustee named to take over later.

Revocable vs. Irrevocable Trusts

A revocable trust (sometimes called a living trust) can be changed or dissolved by the grantor during their lifetime, offering flexibility but generally providing limited asset protection or tax benefit, since the grantor retains control. An irrevocable trust generally cannot be changed once established, offering potential asset protection and estate tax benefits (Lesson 14) in exchange for giving up that flexibility and control.

Common Reasons Families Use a Trust

• Avoiding probate for assets placed in the trust
• Managing an inheritance for a minor child until a specified age
• Providing for a beneficiary with a disability without affecting means-tested benefits (Lesson 15)
• Maintaining privacy, since trusts generally aren't public record the way a probated will is
• Adding conditions to a distribution (for example, staggered distributions at certain ages)
• Certain estate tax planning strategies for larger estates (Lesson 14)

Evaluating Whether a Trust Fits Your Situation

Not every estate needs a trust, many people are well served by a will alone, particularly with modest estates and straightforward wishes. A trust is more often worth considering for minor or vulnerable beneficiaries, a desire for privacy or probate avoidance, blended family complexity, or larger estates approaching estate tax thresholds. Discuss your specific situation with an estate attorney to evaluate fit.

A Realistic Example

Concerned about her three grandchildren, ages 6, 9, and 14, receiving a large inheritance all at once if something happened to their parents, Linda works with an attorney to set up a trust as part of her estate plan, naming a trusted family friend as successor trustee. The trust specifies that funds are used for the grandchildren's education and general welfare while they're minors, with a portion distributed at ages 25 and 30 rather than a lump sum at 18.

This structure gives Linda far more control over how and when her grandchildren receive their inheritance than a will alone could provide, addressing her specific concern about young beneficiaries receiving a large sum all at once.

Practical Habits for Evaluating a Trust

• Discuss your specific situation with an estate attorney to determine whether a trust adds meaningful value
• If you set up a trust, make sure it's actually funded, an unfunded trust provides no benefit for assets left outside it
• Choose a trustee as deliberately as you would an executor (Lesson 4)
• Review your trust periodically alongside your other estate documents

Common Myths About Trusts

Frequently Asked Questions