What is a Trust?
A trust is a legal, fiduciary arrangement among a grantor, trustee, and beneficiary. It provides for the ownership, management, and distribution of assets where the trustee holds the assets for the grantor for the benefit of a third party, called a beneficiary. The grantor gives up his or her ownership of the assets that are to be transferred to a trust and the trustee holds assets and manages them according to the conditions stipulated in a trust deed.
Creating trust can be a good way to ensure that the assets you worked hard for are protected. Trusts preserve your assets for your loved ones or other individuals or organizations you wish to benefit, and unlike a Will, a Trust is a private document thus avoiding the often-expensive probate process. Not all trusts, however, are created equal.
There are two main types of trusts: revocable and irrevocable trust. Before you can decide which type of trust best suits your situation, you must first consider how much control you want or need to retain over your assets. Keep in mind that you reap fewer immediate benefits when you exercise more control over your assets. Surrendering control allows you to enjoy greater potential benefits down the line.
A revocable trust gives you, as the grantor, considerable control over the assets in the trust. The grantor can modify the terms or conditions of a revocable trust at any time. All a grantor must do is file a trust amendment to make any revisions he or she feels warranted. The grantor can also change the beneficiaries of a revocable trust at any time.
A revocable trust is useful when a grantor becomes incapacitated and can no longer administer the trust’s assets. Without a trust, the beneficiaries must go to court to obtain a conservatorship, which will manage the assets for them. With a trust, a trustee successor, designated at the time the trust is created, immediately takes over the grantor’s tasks. This allows for a seamless transition and, most likely, an uninterrupted disbursement of benefits as well.
An irrevocable trust can offer substantial asset protection. It can also offer estate planning, tax benefits, and help one qualify for government programs that require personal asset caps, such as Medicaid.