What is a Trust?

A trust is a legal entity that holds assets for the benefit of another.  Trusts can be used in a variety of ways:  Some are established to help distribute a person’s assets after they’re deceased in a more tax efficient way, or to hold them for minors.  Others are established and operate similar to companies or non-profit corporations.  Still others are creations of the courts.

Generally, though, a person gives assets to (or “funds”) a trust during their life or upon their death.  That person (the “settlor” or “trustor”) typically directs that the assets are to be managed by an individual or company (the “trustee”) for the benefit of another (“the beneficiary”).  While that is fairly straightforward, that simple structure has a number of legal applications.  If you want to help your wayward adult child after your death but don’t merely want to give them a large sum of money, a spendthrift trust can distribute amounts to them periodically while managing and preserving the principal balance.  If you want your money to be invested until your minor children reaches a certain age, and possibly only pay for food and shelter in the meantime, a trust may be the appropriate mechanism.  If you want to place your assets into a separate entity during your lifetime, to defer taxes on income or for other reasons, a family trust may be just the right thing.

Trusts can be simple or extremely complicated, but at their heart they always have the simple role of taking the assets of one party, having them managed by another, for the benefit of yet another.  Different states and countries have laws regarding whether the same person can fill more than one of these roles, and it will all depend on what you are trying to accomplish.  But at their core, trusts are straightforward legal creatures that you should consider when estate planning, or even when planning certain types of businesses.