What is a trust?
A trust is an arrangement where one party manages property for the benefit of another subject to certain provisions set forth by the creator. Trusts are commonly used in estate planning. In these matters, property is usually distributed to third party beneficiaries using a trust.
Are there different types of trusts?
There are various types of trusts that are created at different times with different characteristics. Inter vivos trusts are set up during the creator’s lifetime, while testamentary trusts are set up upon the creator’s death. Revocable trusts can be changed during the creator’s life. Irrevocable trusts cannot be changed after they are set up. The most commonly used trust is the revocable living trust which is set up, funded and can be changed during the creator’s life. These trusts are usually at the center of an estate plan.
Trusts can also be customized to the specific situation and are used to achieve many different goals. Trusts can be used to avoid probate (the legal process of validating a will). A well drafted trust will achieve the same goals as the probate process, but as trusts are often less time consuming and expensive to administer, they are usually a better option. Assets in a trust pass automatically to third party beneficiaries without the need for a court proceeding.
Trusts can also be used to control distributions made to minors and problem beneficiaries as certain stipulations can be built right in. A Special Needs or Supplemental Needs Trust can be used to allow a special needs individual to continue receiving public benefits while also obtaining financial assistance from the trust itself. Spendthrift trusts can be used to shelter assets from creditors. Trusts can also be set up to serve various other functions.