What is a Trust?

August 15, 2024
Jennifer Nichols

Trusts have become one of the most popular estate planning tools for several reasons. However, they are not necessarily the best option for everyone. Understanding what they are and how they can serve your estate planning goals is important. An experienced estate planning lawyer can discuss how a trust can serve your plans and what other options are available to you.

Trusts Defined

In its most basic form, a trust is a contractual arrangement between one person (“the trustee”) who holds assets for the benefit of another person or persons (“the beneficiaries”). The arrangement creates a fiduciary relationship between the trustee and the beneficiaries, meaning that the trustee must act in the best interests of the beneficiaries at all times.

More specifically, a trust is an estate planning tool whereby someone (the “grantor” or “settlor”) can transfer ownership of real estate, cash, investments, or other assets into the trust for the benefit of those people the grantor designates as beneficiaries.

How Is a Trust Different from a Will?

While both trusts and wills are basic estate planning tools, they differ in fundamental ways.

  • Wills take effect only upon the death of the testator (the person who created the will), while a trust can take effect once it is created. Depending on the terms of the trust agreement, this means that the beneficiaries can begin benefiting from the trust almost immediately.
  • Trusts do not have to go through probate. This means that the distribution of assets will proceed according to the terms of the trust without going to court.
  • Because you do not have to go through probate, trusts can provide greater privacy. Your assets will not become public record.
  • A trust can protect assets from creditors and other legal claims.
  • A trust can be used for tax planning purposes.

These features might make it seem like trusts are superior to wills, but this is not the case for everyone. A knowledgeable estate planning lawyer can discuss which options make the most sense for your needs.

Different Types of Trusts

Trusts can be structured in various ways to meet different needs. The most popular trust is a revocable or “living” trust—a trust where the terms of the trust can be modified at any time, and the trust itself can be fully revoked. By contrast, an irrevocable trust is one that is very difficult to modify or revoke. An irrevocable trust is typically used to avoid estate taxes and for disability planning purposes. Other common types of trusts include the following:

An estate planning lawyer can help you decide which type of trust will best meet your needs and then help you create and fund it.

Contact J Nichols Law, PLLC, To Discuss Whether a Trust is Right for You

Creating a trust requires careful consideration and skilled planning. If you are looking for guidance about creating a trust as part of your estate plan, call us today at 409-257-7878 or contact us online to schedule a consultation.

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