Trusts can be used to accomplish a wide range of goals, from preserving family privacy to ensuring children with disabilities are cared for. They may seem geared primarily to high-net-worth families, but individuals of more modest means can also benefit from them. Creating a trust can help to ensure that the wishes of the grantor are carried out after death and can avoid conflict among beneficiaries, as well as providing tax benefits and protections.

A trustee is a person or company appointed to manage property and distribute income to beneficiaries according to the terms of a trust document. The trustee can be the grantor, the beneficiary or a neutral third party. Trusts can be revocable or irrevocable and the terms of the trust can be amended at any time. A revocable trust is more flexible and allows the grantor to change his or her estate plan at any time, while an irrevocable trust can only be changed after the grantor’s death.

Creating a trust can help to prevent disputes between beneficiaries, especially when it comes to illiquid assets like business interests and real estate holdings. Trust ownership can provide a layer of protection from creditors and can result in significant income and estate taxes savings.

Beneficiaries receive distributions of net income and/or principal from the trustee each year, depending on the terms of the trust. They will eventually receive all of the trust principal (corpus) upon termination of the trust. Beneficiaries may choose to use the distributions for a variety of purposes, from paying living expenses to purchasing a new home or funding their children’s education. Alternatively, they might prefer to invest the proceeds and hope to gain greater appreciation over time.

The trustee will report the annual income to the beneficiaries and is required to file an income tax return. The trustee may be required to get an asset appraisal and filing instructions from the court before distributing the trust assets. Generally, the trustee has a few months to review the trust terms, obtain an appraisal and file paperwork before the assets are distributed to beneficiaries.

If you are considering creating a trust, it is important to meet with your attorney to discuss possible drafting options and potential tax implications. This can save your heirs significant amounts in legal fees on the back end, while helping to make sure that your family’s financial wishes are carried out after you pass away. You can also find a qualified professional trustee who can answer your questions about the trust process and work with your attorney and other advisors to ensure that all of the necessary documents are in place. Make sure you meet regularly with your trustee and that you receive copies of all trust documents for your records. Talk to your trustee and your tax advisor about the specifics of your trust and regularly review your investment and income statements. This will ensure that your affairs are in good hands and will allow you to feel confident that the trustee is handling your estate properly.