A trust is a legal arrangement that allows you, as the grantor or settlor, to transfer assets to a separate legal entity managed by a trustee. The trustee is responsible for managing the trust assets according to the terms you set and for the benefit of one or more beneficiaries. Trusts can be used for various purposes, such as asset protection, tax planning or providing financial support to your loved ones.
You must establish the terms and conditions of the trust, which dictate how the assets will be managed and distributed. This can include instructions on when and how the beneficiaries receive the trust assets, any restrictions on the use of the assets or provisions for how the trust should be managed in case of unforeseen circumstances.
There are two types of trusts: revocable and irrevocable. There are a few key points you should know about each type:
Revocable trusts
A revocable trust, also known as a living trust, allows you to retain control over the trust assets and modify or terminate the trust during your lifetime. This type of trust can be useful for managing your assets and avoiding probate, but it does not typically offer the same level of asset protection or tax benefits as an irrevocable trust.
Irrevocable trusts
An irrevocable trust is a permanent arrangement in which you relinquish control over the trust assets once the trust is established. While you cannot modify or terminate the trust without the beneficiaries’ consent, an irrevocable trust can provide significant asset protection and tax benefits.
Creating a trust can be a complex process, and it’s essential to understand exactly what the trust you established will do. Working with someone who’s familiar with your wishes and your assets can help you to make decisions that can help you meet your goals.